Where's the Greenium?

58 Pages Posted: 13 Feb 2019 Last revised: 2 Jul 2020

See all articles by David F. Larcker

David F. Larcker

Stanford University - Graduate School of Business

Edward M. Watts

Yale School of Management

Date Written: February 12, 2019


This study investigates whether investors are willing to trade off wealth for societal benefits. We take advantage of unique institutional features of the municipal securities market to provide insight into this question. Since 2013, over $23 billion green bonds have been issued to fund eco-friendly projects. Comparing green securities to nearly identical securities issued for non-green purposes by the same issuers on the same day, we observe economically identical pricing for green and non-green issues. In contrast to a number of recent theoretical and experimental studies, we find that in real market settings investors appear entirely unwilling to forgo wealth to invest in environmentally sustainable projects. When risk and payoffs are held constant and are known to investors ex-ante, investors view green and non-green securities by the same issuer as almost exact substitutes. Thus, the greenium is essentially zero.

Keywords: Environmental, Social and Governance (ESG), Socially Responsible Investing (SRI), Municipal Bonds, Green Bonds

JEL Classification: G12, G14, G20

Suggested Citation

Larcker, David F. and Watts, Edward, Where's the Greenium? (February 12, 2019). Rock Center for Corporate Governance at Stanford University Working Paper No. 239; Stanford University Graduate School of Business Research Paper No. 19-14; Journal of Accounting and Economics, Volume 69, Issues 2–3, April–May 2020, 101312. Available at SSRN: https://ssrn.com/abstract=3333847 or http://dx.doi.org/10.2139/ssrn.3333847

David F. Larcker (Contact Author)

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Edward Watts

Yale School of Management ( email )

165 Whitney Ave
New Haven, CT 06511

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