· 2026
Flow-Driven ESG Returns
- 95citations
- 2026year
Short summary
ESG investing returns are primarily driven by price impact from investor flows, not fundamental value, with every dollar flowing into ESG increasing ESG stock value by $0.8 and contributing 1.9% annual flow-driven returns.
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Key points
- ESG returns are primarily driven by price impact from investor flows.
- Every dollar flowing into ESG portfolios increases ESG stock market value by $0.8.
- Institutional flows have caused an annual flow-driven return of 1.9% for ESG stocks.
- ESG stocks would not have outperformed the market from 2012-2023 without these flows.
AI-generated from the title and abstract; the full text is not read.
Abstract
I show that the recent returns to ESG investing are strongly driven by price impact from flows towards ESG portfolios. Using data on trades, I estimate the market’s ability to accommodate ESG flows, which is given by the elasticity of substitution between ESG and other stocks. I show that every dollar flowing towards a representative ESG portfolio increases the market value of ESG stocks by $0.8. The growing institutional flows into the ESG portfolio are the main driver of ESG returns and have caused an annual flow-driven return of 1.9%. In the absence of flows, ESG stocks would not have outperformed the market from 2012 to 2023.
The authors' abstract, as published at the source., 2026 · DOI ↗
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Field: Economics and Econometrics
Economics and EconometricsEconomics, Econometrics and Finance