The Sustainability Footprint of Institutional Investors: ESG Driven Price Pressure and Performance

Abstract

We propose a novel way of measuring the equity portfolio-level environmental and social characteristics of a 13F institution (the “sustainability footprint”) and examine the relation between sustainability footprints and risk-adjusted investment performance. The analysis shows that 13F institutions with better sustainability footprints outperform. The positive effect of sustainability footprints on the risk-adjusted performance of 13F institutions’ equity portfolios is concentrated in the environmental dimension and in more recent periods. Further tests show that the outperformance is explained by growing investor preferences for sustainable investing over time and the resulting price pressure that institutions exert on stocks with good environmental scores.

Keywords: ESG, sustainability footprint, environmental footprint, social footprint, risk-adjusted performance, price pressure, price impact, institutional investors, investment horizon, socially responsible investing, sustainable investing

JEL Classification: G20, G23, G30, M14, Q01, Q50