2024 North American Winter Meeting, San Antonio, Texas: January, 2024
When Green Investors Are Green Consumers
Maxime Sauzet, Olivier David Zerbib
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.
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