Socially responsible investors increasingly rely on portfolio tilting to curb social and environmental externalities, yet evidence on its effectiveness remains mixed. We show that this ambiguity reflects the distinction between extensive-margin and intensive-margin tilting. While prior work emphasizes reallocations toward already sustainable firms, we document that many investors instead tilt toward firms in transition, targeting improvements in sustainable performance rather than scale. Using a new method that separates firms’ sus
tainability aspirations from realized performance for 9,130 firms across 77 countries, we show that such intensive-margin tilts lower transitioning firms’ cost of equity, accelerate sustainable investment and innovation, and lead to long-run improvements in outcomes. Portfolio tilting can therefore play a constructive role when aimed at firms’ intensive margin of sustainability.
