What drives corporate ESG? Disentangling the importance of investors and managers

Abstract

We study the relative importance of institutional investors and managers for corporate ESG policies. We find that investor effects are the strongest predictors of ESG performance. This result holds across individual ESG dimensions, and it is particularly pronounced for the environmental dimension. Long-term investors and those headquartered in Democratic-leaning states are most strongly associated with higher ESG performance. Additional analyses indicate that both investor selection and influence channels are at play. Overall, our findings highlight the central role of institutional investors for corporate ESG outcomes.

Keywords: ESG, CSR, Investor fixed effects, Manager fixed effects, Institutional investors

JEL Classification: G30, G32, G34, M14, Q56