Flow-Driven ESG Returns

Swiss Finance Institute Research Paper No. 21-71

Winner of the Swiss Finance Institute Best Paper Doctoral Award 2022

60 Pages Posted: 21 Oct 2021 Last revised: 20 Nov 2023

Date Written: September 23, 2021

Abstract

I show that the recent returns to ESG investing are strongly driven by price impact from flows towards ESG funds. Using data on institutional trades, I estimate the market's ability to accommodate the demand of ESG funds, which is given by the elasticity of substitution between ESG and other stocks. I show that every dollar flowing towards ESG stocks increases their aggregate market value by $0.7. Using a novel measure of total ESG flows, I estimate an annual flow-driven ESG return of 2.07%. In the absence of flows, ESG funds would have not outperformed the market from 2017 to 2022.

Keywords: sustainable investing, ESG, price pressure, flows, demand elasticity

JEL Classification: G11, G12, G23

Suggested Citation

van der Beck, Philippe, Flow-Driven ESG Returns (September 23, 2021). Swiss Finance Institute Research Paper No. 21-71, Winner of the Swiss Finance Institute Best Paper Doctoral Award 2022, Available at SSRN: https://ssrn.com/abstract=3929359 or http://dx.doi.org/10.2139/ssrn.3929359

Philippe Van der Beck (Contact Author)

Harvard Business School ( email )

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
5,069
Abstract Views
14,365
Rank
3,441
PlumX Metrics