Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/296936 
Year of Publication: 
2023
Series/Report no.: 
DIIS Working Paper No. 2023:04
Publisher: 
Danish Institute for International Studies (DIIS), Copenhagen
Abstract: 
Environmental, social and governance (ESG) funds are among the fastest growing investment styles. ESG funds can be used either to only mitigate risk (input ESG) or to go beyond that to create impact (output ESG). We argue that the governance by ESG is characterised by three potential transmission mechanisms: ratings, shareholder engagement and capital allocation. These mechanisms can create sustainability impact or constitute 'ESG gaps', if they remain ineffective or unutilised. Based on financial data, an investigation of ESG methodologies and expert interviews, we provide a novel market analysis of the ESG industry, focusing primarily on the capital allocation mechanism. Our findings highlight that while ESG indices could have an impact, most currently do not meaningfully facilitate sustainability - we call this the 'ESG capital allocation gap'. This has important implications because without effective transmission mechanisms, ESG funds cannot have sustainability impact on companies and the real economy.
Subjects: 
Capital allocation
ESG
impact
sustainable finance
transmission mechanisms
ISBN: 
978-87-7236-109-3
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.