Do Responsible Investors Invest Responsibly?

Abstract

We explore a novel survey on responsible investing by institutional investors around the world and match it to archival data on their equity portfolio holdings. We document that institutions that publicly commit to responsible investing exhibit better environmental, social, and governance (ESG) portfolio-level scores but this holds only outside of the United States. US-domiciled investors that commit to responsible investing, in contrast, exhibit at best similar, if not significantly worse portfolio ESG scores than their uncommitted peers. This disconnect between words and actions in the U.S. appears to be partly driven by underperforming investors seeking to attract fund flows, consistent with concerns of “greenwashing.”

Keywords: ESG, SRI, PRI, socially responsible investing, sustainability, institutional investors, greenwashing

JEL Classification: G15, G23, G30, M14