Institutional investors, alternative asset fund managers, and ESG

Joseph A. McCahery, Paul Pudschedl and Martin Steindl

Chapter 7 in Research Handbook on EU Securities Law, 2025, pp 198-241 from Edward Elgar Publishing

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 environmental, and then social.

Keywords: Investment funds; ESG; Private equity; Venture capital; Limited partnership (search for similar items in EconPapers)
Date: 2025
ISBN: 9781800376038
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