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Who Measures and Who Reacts? ESG Scores, Institutional Demand, and Asset Pricing

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  • Gaëlle Le Fol

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

How does ESG information reach asset prices, and why does the answer depend on who produces the rating? Using a causal mediation framework applied to U.S.\ equities over 2016--2025 with Refinitiv and MSCI ratings, we show that approximately 19\% of the negative ESG premium is transmitted through institutional portfolio reallocation --- a lower bound, given the exclusion of neutral investors and the growth of passive management. The decomposition reveals that the market absorbs demand symmetrically regardless of investor type, yet ESG-averse investors respond far more aggressively than ESG-oriented ones, generating an implicit short that dominates the indirect channel. This separation between symmetric market structure and asymmetric behaviour answers the paper's titular questions: \emph{who reacts} is revealed by investor heterogeneity, \emph{who measures} by the provider-specific activation of demand. Quasi-experimental evidence from index reconstitutions confirms causality.

Suggested Citation

  • Gaëlle Le Fol, 2026. "Who Measures and Who Reacts? ESG Scores, Institutional Demand, and Asset Pricing," Post-Print hal-05645099, HAL.
    • Handle: RePEc:hal:journl:hal-05645099
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