A Sustainable Capital Asset Pricing Model (S-CAPM): Evidence from Environmental Integration and Sin Stock Exclusion

Olivier Zerbib
Additional contact information
Olivier Zerbib: CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - GENES - Groupe des Écoles Nationales d'Économie et Statistique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - GENES - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique

Post-Print from HAL

Abstract: This article shows how sustainable investing—through the joint practice of exclusionary screening and environmental, social, and governance (ESG) integration—affects asset returns. I develop an asset pricing model with partial segmentation and heterogeneous preferences. I characterize two exclusion premia generalizing Merton's (1987) premium on neglected stocks and a taste premium that clarifies the relationship between ESG and financial performance. Focusing on US stocks, I estimate the model by applying it to sin stocks as excluded assets and using the holdings of green funds to proxy for environmental integration. The average annual exclusion effect is 2.79% for the period 1999–2019. Although the annual taste effect ranges from –1.12% to + 0.14% across industries for 2007–19, the taste effect spread between the top and bottom terciles of companies within each industry can exceed 2% per year. Finally, I estimate and explain the dynamics of these premia.

Keywords: Sustainable finance; Asset pricing; ESG; Sin stocks (search for similar items in EconPapers)
Date: 2022-07-21
Note: View the original document on HAL open archive server: https://hal.science/hal-05415069v1
References: Add references at CitEc
Citations:

Published in Review of Finance, 2022, 26 (6), pp.1345-1388. ⟨10.1093/rof/rfac045/6647867⟩

Downloads: (external link)
https://hal.science/hal-05415069v1/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05415069

DOI: 10.1093/rof/rfac045/6647867

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().