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Modelling Sustainable Investing in the CAPM

Thorsten Hens and Ester Trutwin
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Thorsten Hens: University of Zurich; University of Lucerne; Norwegian School of Economics; and Swiss Finance Institute
Ester Trutwin: University of Zurich

No 23-56, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Empirical studies investigate various causes and effects of sustainable investments. While some attempts have been made to describe the results found by theoretical models, these are relatively complex and idiosyncratic. We relate to existing studies and use a parsimonious CAPM in which we model various aspects of sustainable investing. Our results find evidence that ESG-harmful investments require higher returns and ESG rating heterogeneity increases returns. Moreover, sustainable investing changes a firm’s production decision through two channels - the growth and the reform channel.

Keywords: Sustainable Investing; ESG rating; CAPM; Growth Channel; Reform Channel (search for similar items in EconPapers)
JEL-codes: G11 G12 G30 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2023-06
New Economics Papers: this item is included in nep-env and nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2356

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