Journal of Banking & Finance Vol. 184 2026
Asset management with an ESG mandate
Abstract
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.
- DOI
- 10.1016/j.jbankfin.2026.107640
- Volume
- 184
- Pages
- 107640
- Language
- en
- Sources
- openalex crossref