Green Tilts

Lubos Pastor; Robert F. Stambaugh; Lucian A. Taylor

doi:10.3386/w31320

Green Tilts

Lubos Pastor, Robert F. Stambaugh & Lucian A. Taylor

Working Paper 31320

DOI 10.3386/w31320

Issue Date June 2023

Revision Date June 2025

We estimate financial institutions' portfolio tilts related to stocks' environmental, social, and governance (ESG) characteristics. From 2012 to 2023, ESGrelated tilts consistently total about 6% of the investment industry's assets and rise from 17% to 27% of institutions' total portfolio tilts. Significant ESG tilts arise from the choice of stocks held and, especially, the weights on stocks held. The largest institutions tilt increasingly toward green stocks, while other institutions and households tilt increasingly brown. Divestment from brown stocks is typically partial rather than full, even for individual mutual funds. UNPRI signatories and European institutions tilt greener; banks tilt browner.

Pástor also serves as an independent director and trustee of Vanguard. The views expressed here are those of the authors and not necessarily those of Vanguard or of the National Bureau of Economic Research. We are grateful for comments from our discussants Dan Green, Sam Hartzmark, Andrei Kirilenko, Pedro Matos, Kunal Sachdeva, Adam Winegar, and Shaojun Zhang; from Doug Diamond, Winston Dou, Joanna Harris, Christian Leuz, David Musto, Mike Sebastian, Yao Zeng, Olivier David Zerbib; participants at the 2025 AFA conference, 2024 WFA conference, 2024 Baruch Climate Finance and ESG Conference, 2024 Cornell OFR Conference on Climate Change, 2024 EFMA meeting, 2024 SoFiE conference, 2023 BI Conference on Corporate Governance, 2023 Fall Chicago Quantitative Alliance meeting, 2023 FRA conference, 2023 Olin Finance Conference at Washington University, 2023 University of Houston/Dallas Fed Energy Finance and the Energy Transition Conference, 2023 University of Alberta Frontiers in Finance Conference; and seminar participants at the following universities: Alabama, Brigham Young, Chicago, EDHEC, Emory, Florida State, HEC Montreal, Maryland, Peking, Penn State, Pennsylvania, Purdue, Stockholm School of Economics, and Tinbergen Institute. We dedicate this paper to the memory of Livia Amato, whose many contributions as a research professional have benefited this paper as well as our prior work. We also thank Vitor Furtado Farias, Vanessa Hu, and Chris Yaoyao Zhu for excellent research assistance. This research was supported by the Fama-Miller Center for Research in Finance and the Robert King Steel Fellowship at the University of Chicago Booth School of Business.

Lubos Pastor
Lubos Pastor is a member of the governing board of the National Bank of Slovakia. Among its duties, this central bank serves as the principal regulator of mutual funds in Slovakia. Yet the bank has no stake in this research, no benefit from it, and no influence upon it.
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