When Green Investors Are Green Consumers (2024)

Proceedings of the EUROFIDAI-ESSEC Paris December Finance Meeting 2022

See all articles by Maxime Sauzet

Maxime Sauzet

Boston University

Olivier David Zerbib

CREST, ENSAE, Institut Polytechnique de Paris

Abstract

We introduce investors with preferences for green assets to a general equilibrium setting in which they also prefer consuming green goods. Their preference for green goods induces consumption premia on expected returns, which counterbalance the green premium stemming from their preferences for green assets. Because they provide a hedge when green goods become expensive, brown assets command lower consumption premia, while green investors allocate a larger share of their portfolios toward them. Empirically, the green-minus-brown consumption-premia differential reached 80 basis points annually, and contributes to explaining the limited impact of green investing on the cost of capital of polluting firms.

Sauzet, Maxime and Zerbib, Olivier David, When Green Investors Are Green Consumers (November 17, 2022). Proceedings of the EUROFIDAI-ESSEC Paris December Finance Meeting 2022, Available at SSRN: https://ssrn.com/abstract=4098124 or http://dx.doi.org/10.2139/ssrn.4098124