A Review on ESG Investing: Investors’ Expectations, Beliefs and Perceptions

Center for Financial Studies Working Paper No. 694, 2023

35 Pages Posted: 31 May 2022 Last revised: 21 Feb 2023

See all articles by Roman Kräussl

Roman Kräussl

Bayes Business School (formerly Cass); Hoover Institution, Stanford University

Tobi Oladiran

Université du Luxembourg

Denitsa Stefanova

Universite du Luxembourg

Date Written: May 31, 2022

Abstract

This study examines the recent literature on the expectations, beliefs and perceptions of investors who incorporate Environmental, Social, Governance (ESG) considerations in investment decisions with the aim to generate superior performance and also make a societal impact. Through the lens of equilibrium models of agents with heterogeneous tastes for ESG investments, green assets are expected to generate lower returns in the long run than their non- ESG counterparts. However, at the short run, ESG investment can outperform non-ESG investment through various channels. Empirically, results of ESG outperformance are mixed. We find consensus in the literature that some investors have ESG preference and that their actions can generate positive social impact. The shift towards more sustainable policies in firms is motivated by the increased market values and the lower cost of capital of green firms driven by investors’ choices.

Keywords: Environmental, Social, Governance, ESG, Performance, Sustainability, Social Impact, Greenwashing

JEL Classification: G01, G10, G11, G12, G24

Suggested Citation

Kraeussl, Roman and Oladiran, Tobi and Stefanova, Denitsa, A Review on ESG Investing: Investors’ Expectations, Beliefs and Perceptions (May 31, 2022). Center for Financial Studies Working Paper No. 694, 2023, Available at SSRN: https://ssrn.com/abstract=4123999 or http://dx.doi.org/10.2139/ssrn.4123999

Roman Kraeussl

Bayes Business School (formerly Cass) ( email )

Hoover Institution, Stanford University ( email )

Stanford, CA 94305
United States

Tobi Oladiran (Contact Author)

Université du Luxembourg ( email )

L-1511 Luxembourg
Luxembourg

Denitsa Stefanova

Universite du Luxembourg ( email )

L-1511 Luxembourg
Luxembourg

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