The paper studies the motivations behind banks’ shareholding of non-financial firms using a panel of large Italian companies in the period 1994–2000. Empirical evidence shows that banks are shareholders of companies that are less profitable, have experienced slower growth, are more indebted, are endowed with collateral and have hard time to repay their debt out of current income. Banks are more likely to hold shares in companies they lend to. Overall the evidence suggests that there is complementarity between bank equity holding and lending. A plausible explanation is the shareholder–debtholder conflict, the evidence is weakly compatible with governance and information hypotheses.

We investigate the portfolio frontier and risk premia in equilibrium when institutional investors aim to minimize the tracking error variance and to attain a certain ESG score (ESG mandate). Provided that a negative ESG premium is priced by the market, we show that an ESG mandate can reduce the mean–variance inefficiency of the portfolio frontier when the asset manager targets a limited over-performance return with respect to the benchmark. In equilibrium, with mean–variance investors and asset managers endowed with an ESG mandate, a negative ESG premium arises if the mandate is binding for asset managers. The negative ESG premium is due to the ESG constraint (institutional investors over-invest in virtuous ESG stocks). We find empirical evidence of such a negative premium in the US market.