Green Investors

Sangmin (Simon) Oh, Joint Program in Financial Economics PhD student

We use the portfolio holdings of institutional investors to investigate how they incorporate ESG investing differently. We use holdings for two reasons: heterogeneity in demand for “greenness” is better reflected in holdings than in returns, and holdings represent a better “skin-in-the-game” measure of investor stance towards ESG investing. Using third-party environment scores as well as carbon emissions data, we estimate investors’ demand for “greenness” and categorize investors into four groups. We then ask if investor incentives and style can explain the heterogeneity in their exposures. Our results shed light on which investors drive capital reallocation towards greener firms and which firms take contrarian positions, ultimately contributing to the discussion on the efficacy of ESG investing.