Skills and Sentiment in Sustainable Investing

61 Pages Posted: 2 Mar 2020 Last revised: 1 Jul 2020

See all articles by Andreas Brøgger

Andreas Brøgger

Copenhagen Business School

Alexander Kronies

Copenhagen Business School

Date Written: February 1, 2020


We document a positive Environmental Social Governance (ESG) premium amongst stocks with high socially unconstrained ownership (unconstrained investors are mutual funds, hedge funds and other investment advisors). This premium is not there for high socially constrained ownership. In fact, we find that constrained investors chase high ESG stocks with high abnormal returns. Once purchased, however, abnormal returns drop. The returns do not seem to be driven by consumption risk as they are especially high during the financial crisis. Instead, they are explained by a fact that we further uncover. The new fact is that unconstrained investors are skilled investors who research firms and are able to predict their future ESG scores. This earns them an abnormal return due to a sustainability premium. We further show that they are able to exploit this especially during periods of high climate sentiment and in times of crisis. In the process, we construct a new text-based sustainability sentiment measure and create both an ESG and climate factor that are useful for the asset pricing research community.

Keywords: Heterogenous Investors, Revealed Preferences, ESG, Sentiment, Text Data

JEL Classification: G11, G12, G14, Q5

Suggested Citation

Brøgger, Andreas Christian Svane and Kronies, Alexander, Skills and Sentiment in Sustainable Investing (February 1, 2020). Available at SSRN: or

Andreas Christian Svane Brøgger (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg, Frederiksberg 2000

Alexander Kronies

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000

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