Corporate ESG Profiles and Investor Horizons

Abstract

Theories of Environmental, Social and Governance (ESG) investment assume groupings of investors who differ in their preferences or beliefs about ESG. We examine whether investor horizon serves as a basis for these ESG groupings and find that longer horizon investors tilt their portfolios towards firms with high-ESG profiles. We provide evidence that these results are plausibly causal through difference-in-differences tests of shocks to firms’ ESG reputations. Further, consistent with implications of the importance of investor horizon, long-term investors behave more patiently toward the high-ESG firms in their portfolios, selling relatively less after negative earnings surprises or poor stock returns.

Keywords: Corporate ESG, Investor Horizons, Corporate Short-Termism

JEL Classification: G34, G23, G00