As part of the Next Generation EU (NGEU) program, the European Commission has pledged to issue up to EUR 250 billion of the NGEU bonds as green bonds, in order to confirm their commitment to sustainable finance and to support the transition towards a greener Europe. Thereby, the EU is not only...

This paper develops a general equilibrium model of a productive economy with negative externalities. Investors are not willing to accept lower returns than their best investment alternatives and entrepreneurs maximize profits. If capital markets are subject to a search friction, an ESG fund can...