The relation between environmental awareness and stock returns

Matthias Horn, Andreas Oehler, Amal Dabbous and Alexandre Croutzet

International Review of Economics & Finance, 2025, vol. 103, issue C

Abstract: We analyze the green stock premium and assess if a measure of global environmental awareness can forecast the returns of stocks listed in the MSCI North America All Cap Index from 2010 to 2019. The E-pillar score of Sustainalytics’ ESG rating is used as a proxy for companies' environmental risk. We find that stocks with a higher environmental risk show higher returns and alphas, on average. When environmental awareness among investors increases stock returns decrease, on average. However, stocks of more environmentally friendly companies suffer less during such periods. Therefore, stocks with lower environmental risk reduce the differences in returns and alphas or even show higher returns and alphas than stocks with higher environmental risk.

Keywords: Environmental awareness; ESG; Green finance; Sustainable finance; Climate change (search for similar items in EconPapers)
JEL-codes: G11 G12 G17 Q50 Q51 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:103:y:2025:i:c:s1059056025005465

DOI: 10.1016/j.iref.2025.104383

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