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Herds on green meadows: the decarbonization of institutional portfolios

Author

Listed:
  • Lukas Benz

    (University of Augsburg)

  • Andrea Jacob

    (University of Augsburg)

  • Stefan Paulus

    (University of Augsburg)

  • Marco Wilkens

    (University of Augsburg)

Abstract

We analyze an emerging sustainable trend in asset management: the decarbonization of institutional portfolios. By using broad institutional ownership data, we show that investors exhibit herding behavior in the sense of decarbonization. They are inclined to follow their own or other investors’ buys in green stocks and sales in brown stocks over adjacent quarters. Beyond that, we find that Hedge Funds as well as Investment Advisors lead the herd by executing trades in the sense of decarbonization. This is in line with expectations that sophisticated investors, who integrate environmental aspects into their investment decision process, are able to attract imitators. For the aspired achievement of market-wide decarbonization, investors leading the herd should be encouraged to further decarbonize their portfolios in order to trigger follow-up trades.

Suggested Citation

  • Lukas Benz & Andrea Jacob & Stefan Paulus & Marco Wilkens, 2020. "Herds on green meadows: the decarbonization of institutional portfolios," Journal of Asset Management, Palgrave Macmillan, vol. 21(1), pages 13-31, February.
    • Handle: RePEc:pal:assmgt:v:21:y:2020:i:1:d:10.1057_s41260-019-00147-z
    DOI: 10.1057/s41260-019-00147-z
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    Cited by:

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    2. Nektarios Gavrilakis & Christos Floros, 2023. "ESG performance, herding behavior and stock market returns: evidence from Europe," Operational Research, Springer, vol. 23(1), pages 1-21, March.
    3. Marupanthorn, Pasin & Nikitopoulos, Christina S. & Ofosu-Hene, Eric D. & Peters, Gareth W. & Richards, Kylie-Anne, 2024. "Mechanisms for implementing fossil fuel divestment in portfolio management with impact on risk, return and carbon reduction," Energy Economics, Elsevier, vol. 136(C).
    4. Rohleder, Martin & Wilkens, Marco & Zink, Jonas, 2022. "The effects of mutual fund decarbonization on stock prices and carbon emissions," Journal of Banking & Finance, Elsevier, vol. 134(C).
    5. Muñoz, Fernando, 2021. "Carbon-intensive industries in Socially Responsible mutual funds' portfolios," International Review of Financial Analysis, Elsevier, vol. 75(C).
    6. Jonas Zink, 2024. "Which investors support the transition toward a low-carbon economy? Exit and Voice in mutual funds," Journal of Asset Management, Palgrave Macmillan, vol. 25(2), pages 147-161, March.
    7. Alessi, Lucia & Battiston, Stefano & Kvedaras, Virmantas, 2024. "Over with carbon? Investors’ reaction to the Paris Agreement and the US withdrawal," Journal of Financial Stability, Elsevier, vol. 71(C).
    8. Neil Gunningham, 2020. "A Quiet Revolution: Central Banks, Financial Regulators, and Climate Finance," Sustainability, MDPI, vol. 12(22), pages 1-22, November.
    9. Lukas Benz & Stefan Paulus & Julia Scherer & Janik Syryca & Stefan Trück, 2021. "Investors' carbon risk exposure and their potential for shareholder engagement," Business Strategy and the Environment, Wiley Blackwell, vol. 30(1), pages 282-301, January.
    10. Diego P. Guisande & Maretno Agus Harjoto & Andreas G. F. Hoepner & Conall O’Sullivan, 2024. "Ethics and Banking: Do Banks Divest Their Kind?," Journal of Business Ethics, Springer, vol. 192(1), pages 191-223, June.
    11. Venturini, Alessio, 2022. "Climate change, risk factors and stock returns: A review of the literature," International Review of Financial Analysis, Elsevier, vol. 79(C).

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    More about this item

    Keywords

    Decarbonization; Institutional investors; Herding;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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