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...

We design an experiment to understand how social preferences affect investment decisions through stock allocations and probability assessments. The major preference channel is asymmetric in social outcomes - although negative and positive responsible investment (RI) externalities have the same...

We study how environmental, social and governance (ESG) investing reshapes information aggregation by prices. We develop a rational expectations equilibrium model in which traditional and green investors are informed about financial and ESG risks but have different preferences over them. Because...

After a boom and bust cycle in the early 2010s, venture capital (VC) investments are, once again, flowing towards green businesses. In this paper, we use Crunchbase data on 150,000 US startups founded between 2000 and 2020 to better understand why VC initially did not prove successful in funding...

This paper studies green bonds, a relatively new instrument in sustainable finance. I first describe the market for green bonds and characterize the "green bond boom" witnessed in recent years. Second, using firm-level data on green bonds issued by public companies, I examine companies'...

We present a model of investing based on environmental, social, and governance (ESG) criteria. In equilibrium, green assets have negative CAPM alphas, whereas brown assets have positive alphas. Green assets' negative alphas stem from investors' preference for green holdings and from green...

We review an empirical literature that studies the role of social interactions in driving economic and financial decision making. We first summarize recent work that documents an important role of social interactions in explaining household decisions in housing and mortgage markets. This...

As the level of retirement-related assets has grown, so too has public and private interest in so-called "Socially Responsible Investment" (SRI), an investment strategy that employs criteria other than the usual financial risk and return factors when selecting firms in which to invest. This...

In lieu of carbon taxes to address global warming, sustainable investment mandates are proposed to incentivize firms to achieve net-zero emissions. With underspending on mitigation due to externalities, we model the welfare consequences of these investments in firms that qualify by spending...

More than 1,500 organizations and investors representing over $40 trillion in assets have committed to fossil fuel divestment to combat climate change. Will it work? This chapter explores whether divestment might induce green innovation, a critical component of transitioning to a cleaner...