How do institutional investors evaluate ESG? Evidence from survey and archival data in China

This study examines how institutional investors evaluate corporate ESG performance in emerging markets, using surveys and archival data. We find that investors are more sensitive to ESG performance below the 60th percentile of peers, with limited sensitivity to improvements beyond this point. Both risk and stock return are more affected by ESG performance within this lower range, especially among short-term investors. The results suggest that value-driven considerations, rather than ethical motives, guide institutional investors’ attitudes toward ESG, highlighting the importance of managing ESG expectations and balancing improvements under resource constraints.