Institutional Investors, Alternative Asset Managers, and ESG Preferences

62 Pages Posted: 24 Oct 2022

See all articles by Joseph A. McCahery

Joseph A. McCahery

Tilburg University - School of Law; European Banking Center (EBC); Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI)

Paul C. Pudschedl

University of Applied Sciences Wiener Neustadt; Tilburg University - Department of Business Law; Tilburg Law and Economics Center (TILEC)

Martin Steindl

Independent

Date Written: October 2022

Abstract

We survey institutional investors to understand why they integrate environmental, social and governance (ESG) factors into their investment management processes. Using a unique data set, we find that limited partners (LPs) are motivated to incorporate ESG because they believe that ESG usage is more strongly correlated with financial performance. We find that general partners (GPs) are motivated to integrate ESG factors into their investment strategies in response to increased client demand for sustainable products. Furthermore, we find that private equity (PE) uses ESG factors more intensely than venture capital (VC) regardless of geography. We also find that PE firms use voice and exit strategies more extensively than VC funds in efforts to promote ESG activities in companies. When evaluating individual components of ESG scores, we find that the investors consider the governance score the most important component, followed by E, and then S.

Keywords: ESG, Institutional Investors, Private Equity, Venture Capital

JEL Classification: G11, G12, G23, G3

Suggested Citation

McCahery, Joseph A. and Pudschedl, Paul C. and Steindl, Martin, Institutional Investors, Alternative Asset Managers, and ESG Preferences (October 2022). European Corporate Governance Institute - Law Working Paper No. 661, 2022, Tilburg Law School Research Paper, Available at SSRN: https://ssrn.com/abstract=4256325 or http://dx.doi.org/10.2139/ssrn.4256325

Joseph A. McCahery (Contact Author)

Tilburg University - School of Law; European Banking Center (EBC) ( email )

Warandelaan 2
Tilburg, 5000 LE
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Tilburg Law and Economics Center (TILEC)

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European Corporate Governance Institute (ECGI)

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Belgium

HOME PAGE: http://www.ecgi.org

Paul C. Pudschedl

University of Applied Sciences Wiener Neustadt ( email )

Wiener Neustadt
Austria

Tilburg University - Department of Business Law ( email )

Netherlands

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Martin Steindl

Independent

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