Institutional Ownership and ESG Performance : How does Norges Bank Investment Management impact the ESG performance of firms in its equity portfolio?

Abstract

This paper assesses whether institutional ownership impacts the environmental, social, and governance (ESG) performance of firms worldwide. To study this issue, we analyze financial metrics and ESG scores on 5444 companies owned by the Government Pension Fund Global managed by Norges Bank Investment Management. Our findings reveal that the ESG score of companies owned by NBIM is significantly higher than that of the average of all companies in the Refinitiv database. However, further analysis indicates that NBIM ownership has no statistically significant effect on ESG performance. The effect of exclusion by NBIM on the ESG score of a company is also insignificant according to our analysis. This implies that NBIM screens firms for ESG performance to display their commitment to sustainability. We theorize that the observed results could be attributed to inadequate ownership stakes, thereby restricting NBIM’s impact on company ESG scores.