Institutional Investors and ESG Preferences

We study the effect of environmental, social and governance (ESG) scores on the portfolio allocations of institutional investors. Using a unique data set, we find that institutional investor holdings (as measured by 13F filings) are strongly driven by the ESG quality of companies. While investors are driven to add high quality ESG companies to their portfolios, there is a negative relationship to ESG when it comes to taking large ownership stakes. Blockholders appear much less motivated by ESG scores. Evaluating individual ESG scores, we find that the individual ESG governance score has the highest impact on institutional investor holdings