Sustainable Investing in Equilibrium

Pástor, Luboš, Robert Stambaugh and Lucian Taylor
Authors registered in the RePEc Author Service: Lubos Pastor

No 14171, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We model investing that considers environmental, social, and governance (ESG) criteria. In equilibrium, green assets have low expected returns because investors enjoy holding them and because green assets hedge climate risk. Green assets nevertheless outperform when positive shocks hit the ESG factor, which captures shifts in customers' tastes for green products and investors' tastes for green holdings. The ESG factor and the market portfolio price assets in a two-factor model. The ESG investment industry is largest when investors' ESG preferences differ most. Sustainable investing produces positive social impact by making firms greener and by shifting real investment toward green firms.

Keywords: Sustainable investing; ESG; Socially responsible investing; Social impact (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Sustainable investing in equilibrium (2021)
Working Paper: Sustainable Investing in Equilibrium (2020)
Working Paper: Sustainable Investing in Equilibrium (2019)
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