Are Green Investors Green-Inducing? A Demand System Approach

42 Pages Posted: 23 Jul 2020 Last revised: 10 Sep 2020

See all articles by Don Noh

Don Noh

Princeton University

Sangmin Oh

University of Chicago - Booth School of Business

Date Written: June 30, 2020


Despite the growing interest in green investing among academics and industry professionals alike, there is little consensus on whether it successfully incentivizes firms to adopt eco-friendly business practices. Using the equity holdings of institutional investors and the “demand system approach” to asset pricing, we provide evidence that institutional demand for greener stocks encourages firms to improve their environmental performances. Specifically, we devise and estimate a firm-level quantity, institutional pressure for greenness, that measures the price pressure a firm receives from its institutional owners. We find that this quantity has a positive and significant relationship with future improvement in a firm's environmental performance. Together with results from placebo tests, we conclude that green investors, those with high portfolio-level environment scores, are not necessarily green-inducing investors, those who encourage better environmental performance. Instead, green-inducing investors are institutions who contribute to higher institutional pressure, i.e. investors who are price-inelastic and display a positive portfolio tilt towards greener assets.

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

JEL Classification: G10, G11, G20

Suggested Citation

Noh, Don and Oh, Sangmin, Are Green Investors Green-Inducing? A Demand System Approach (June 30, 2020). Available at SSRN: or

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

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