Dissecting Green Returns

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

No 16260, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Green assets delivered high returns in recent years. This performance reflects unexpectedly strong increases in environmental concerns, not high expected returns. German green bonds outperformed their higher-yielding non-green twins as the "greenium" widened, and U.S. green stocks outperformed brown as climate concerns strengthened. Despite that outperformance, we estimate lower expected returns for green stocks than for brown, consistent with theory. We estimate expected returns in two ways: ex ante, using implied costs of capital, and ex post, using realized returns purged of shocks from climate concerns and earnings. A theoretically motivated green factor explains much of value stocks' recent underperformance.

Keywords: Sustainable investing; ESG; Green factor; Greenium; Green bonds (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2022-06
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Journal Article: Dissecting green returns (2022)
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