Unpacking the Demand for Sustainable Equity Investing

69 Pages Posted: 23 Jul 2020 Last revised: 26 Mar 2024

See all articles by Don Noh

Don Noh

Hong Kong University of Science & Technology (HKUST)

Sangmin Oh

University of Chicago - Booth School of Business; University of Chicago - Department of Economics

Jihong Song

Princeton University - Department of Economics

Date Written: June 30, 2020

Abstract

We investigate the heterogeneity in investor demand for sustainable equity investing and study its implications. We measure firm-level sustainability across three dimensions: third-party environment scores, emissions, and green patents. Separately estimated institutional investor demands are sensitive to scores and emissions, but not to green patents. We then aggregate these heterogeneous demands in an equilibrium framework to draw implications for the effectiveness of sustainable investing: (i) price-elastic investors do not “undo” effects of sustainable investors, (ii) investor pressure for sustainability only weakly predicts future improvements in firm sustainability, and (iii) incorporating green patents into ESG ratings can be a valuable adjustment.

Keywords: Sustainable investing, ESG, Asset demand system, Climate risk, Investor pressure

JEL Classification: G12, G23, Q54

Suggested Citation

Noh, Don and Oh, Sangmin and Song, Jihong, Unpacking the Demand for Sustainable Equity Investing (June 30, 2020). Available at SSRN: https://ssrn.com/abstract=3639693 or http://dx.doi.org/10.2139/ssrn.3639693

Don Noh

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Sangmin Oh (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Jihong Song

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

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