Sustainable Investing: Evidence From the Field

We survey 509 equity portfolio managers from both traditional and sustainable funds on whether, why, and how they incorporate firms’ environmental and social (“ES”) performance into investment decisions. ES performance influences stock selection, engagement, and voting for over three quarters of investors, including nearly two-thirds of traditional investors. Financial considerations are a primary reason, even among sustainable funds. Few are willing to sacrifice financial returns for ES performance, largely due to fiduciary duty, and voting and engagement are mainly driven by financial considerations. A second reason is constraints. Fund mandates, firmwide policies, or client wishes caused 71% to make stock selection, voting, or engagement decisions that they would otherwise not have. Some of these actions had financial consequences, such as avoiding stocks that would improve returns or diversification; others had ES consequences, such as avoiding stocks whose ES performance they could have improved. Joint paper with Alex Edmans and Tom Gosling.