ABSTRACTResearch Question/IssueWe examine the effect of multiple environmental, social, and governance (ESG) scores on institutional investor ownership of firms and investor portfolio weightings. We are also the first to analyze the three individual components of ESG rankings to estimate the relative preferences of institutional investors.Research Findings/InsightsUsing a unique panel dataset covering US companies and institutional investor portfolios over the 2010–2019 period, we find that while investors are driven to add high‐quality ESG companies to their portfolios, there is a negative relationship with ESG when it comes to taking large ownership stakes. Furthermore, ESG scores are negatively related to the portfolio weightings of institutional investors, which raises concerns of greenwashing. Our analysis of individual ESG scores points to significantly larger effects of G scores in terms of holdings, and G is the only score with no negative impact on portfolio weightings. Finally, in support of systematic stewardship theory, top institutional investors allocate higher proportions of their portfolios to firms with high‐ESG ratings. Our results are robust to the use of a difference‐in‐differences analysis addressing endogeneity concerns.Theoretical/Academic ImplicationsThe findings in this paper offer important policy implications for institutional investors, managers, and policymakers. Given the ongoing debate on ESG scores, this paper shows the importance of examining greenwashing for investors who have a concern regarding the extent to which the valuation of assets might be influenced by unsupported sustainability claims. In addition, our study adds to the debate regarding ESG investing and stewardship theory.