Sustainable Investing Home and Abroad | Lucie Y. Lu

Sustainable Investing Home and Abroad


We study how firm ESG performance affects domestic and foreign institutional investments. At the firm level, the marginal effects of ESG on institutional ownership vary across institution origin and investment destination countries. At the institution-firm level, institutions tilt towards high-ESG firms only when they are domestic. We term this asymmetry in ESG preference between domestic and foreign investment the “ESG home bias”. We explore ESG information environment, country E&S awareness, and ESG factor discount as potential economic mechanisms and find that the ESG home bias reflects a combination of these factors, the most important being information asymmetry about the ESG outcome measured by ESG uncertainty.

Working Paper