Institutional Investors, Alternative Asset Managers, and ESG Preferences

Institutional Investors, Alternative Asset Managers, and ESG Preferences

Joseph McCahery, Paul C. Pudschedl, Martin Steindl

Series number :

Serial Number: 
661/2022

Date posted :

October 23 2022

Last revised :

October 23 2022
SSRN Share

Keywords

  • ESG • 
  • institutional investors • 
  • private equity • 
  • venture capital

We survey institutional investors to understand why they integrate environmental, social and governance (ESG) factors into their investment management processes. Using a unique dataset, 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.

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Authors

Real name:
Paul C. Pudschedl
Professor
Real name:
Joseph McCahery
Research Member
Tilburg University Faculty of Law and Tilburg Law and Economics Center
Real name:
Martin Steindl