ESG Investors and Local Greenness: Evidence from Infrastructure Deals

Abstract

This paper assesses the role of local greenness in attracting ESG capital into infrastructure deals in the US. Local greenness refers to state-level policies and incentives to increase energy efficiency, local capabilities to develop green assets, and local citizen’s green ideology. We identify ESG investors as infrastructure private equity (PE) fund management firms who have signed the United Nations Principles for Responsible Investment (UN PRI). We find that in states with higher greenness, ESG PE investors are more likely to be involved in an infrastructure deal. We show that green policies and incentives contribute to a boost in green capabilities and green ideology thus reducing political and regulatory risk for ESG investors interested in low-risk-low-return way of “greenifying” their portfolio.

Keywords: ESG investors, infrastructure private equity funds, local greenness.

JEL Classification: G11,G18,H54