Measuring Institutional Pressure for Greenness: A Demand System Approach

46 Pages Posted: 23 Jul 2020 Last revised: 30 Aug 2021

See all articles by Don Noh

Don Noh

Princeton University

Sangmin Oh

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

Date Written: June 30, 2020

Abstract

How should we quantify the institutional price pressure induced by demand for green stocks? We use the equity holdings of institutional investors and the demand system approach to answer this question. We devise and estimate a firm-level quantity, institutional pressure for greenness, that measures the price pressure a firm receives from its institutional owners to become more environment-friendly. We find that this quantity has a positive and significant relationship with future improvement in a firm’s carbon intensity, but not with other measures of a firm’s environment performance. We also find that investors with high portfolio-level environment scores do not necessarily contribute to higher institutional pressure. Instead, investors who are price-inelastic and display a positive portfolio tilt towards greenness – those who overweight greener stocks even after controlling for other characteristics – contribute the most to institutional pressure.

Keywords: ESG, Green Investing, Demand System, Institutional Investors

JEL Classification: G10, G11, G20

Suggested Citation

Noh, Don and Oh, Sangmin, Measuring Institutional Pressure for Greenness: A Demand System Approach (June 30, 2020). Available at SSRN: https://ssrn.com/abstract=3639693 or http://dx.doi.org/10.2139/ssrn.3639693

Don Noh

Princeton University ( email )

Princeton, NJ 08544-1021
United States

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

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