Skills and Sentiment in Sustainable Investing

109 Pages Posted: 2 Mar 2020 Last revised: 1 Dec 2022

See all articles by Andreas Brøgger

Andreas Brøgger

Rotterdam School of Management (RSM), Erasmus University

Alexander Kronies

Copenhagen Business School

Date Written: February 1, 2020

Abstract

We document a significant difference in the returns to sustainable investing across investor types. Investors with strict ESG mandates earn 3.1% less than flexible investors. The mechanism is that flexible investors are able to react on expected ESG improvements. They buy stocks that subsequently experience ESG score increases. After ESG improvements have realized, demand from strict mandate investors pushes up stock prices, resulting in positive returns for flexible investors. These returns are higher when accompanied by rising climate sentiment, as seen during the 2010s. Our channel accounts for 51% of the return difference between strict and flexible ESG investment mandates.

Keywords: ESG, Heterogenous Investors, Revealed Preferences, Text Data, Sustainable Finance, Responsible Investing

JEL Classification: G11, G12, G14, Q5

Suggested Citation

Brøgger, Andreas and Kronies, Alexander, Skills and Sentiment in Sustainable Investing (February 1, 2020). Available at SSRN: https://ssrn.com/abstract=3531312 or http://dx.doi.org/10.2139/ssrn.3531312

Andreas Brøgger (Contact Author)

Rotterdam School of Management (RSM), Erasmus University ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

Alexander Kronies

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

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