Unpackaging ESG: Evidence from 401(k) Investment

83 Pages Posted: 30 Nov 2023

See all articles by Jiaxing Tian

Jiaxing Tian

London School of Economics

Jiahong Shi

London School of Economics & Political Science (LSE)

Date Written: November 18, 2023

Abstract

We study how investors respond to scandals related to three distinct aspects of ESG--E(nvironmental), S(ocial) and G(overnance)--in their retirement savings. Using data on 401(k) investments, we show that nearby ESG scandals correlate with increased ESG fund additions and flows, possibly through ``evoking'' their existing sustainable preferences. Investors with different characteristics respond heterogeneously to E, S and G scandals. In magnitude, old investors are twice as likely as young investors to add ESG funds to their portfolios after the shock of social scandals. In specific scandals, low-income investors care about human rights, while only young and rich investors care about environmental issues. Investors also have clear leanings on ESG funds, resulting in an overweighting of funds with higher environmental and social scores and a lack of attention to governance elements. Overall, our results suggest the need to incorporate distinct E, S, and G concerns into heterogeneous preference models.

Keywords: ESG Investment, Sustainable Investment, Heterogenous Preference, 401(k) Plan

JEL Classification: D91, G11, G50, J32, Q50

Suggested Citation

Tian, Jiaxing and Shi, Jiahong, Unpackaging ESG: Evidence from 401(k) Investment (November 18, 2023). Available at SSRN: https://ssrn.com/abstract=4637117 or http://dx.doi.org/10.2139/ssrn.4637117

Jiaxing Tian (Contact Author)

London School of Economics

London
Great Britain
07529142197 (Phone)

Jiahong Shi

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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