Do ESG Investors care about carbon emissions? Evidence from securitized auto loans

Abstract

Securitized auto loans present a clean empirical setting to measure preferences for green assets in price and quantity data. I document three puzzling facts: (i) Brown securities which finance high-emission loans have a 6.5% lower cost of capital. Mutual funds marketed as ESG (ii) hold positions across the full distribution of CO2 emissions and (iii) invest more in higher-emission deals compared to non-ESG funds. I attribute these findings in part to the use of ESG ratings of issuers instead of direct measures of emissions.

Keywords: Auto ABS, Climate Change, Climate Finance, Corporate Social Responsibility, Environment, ESG, Green bonds, Greenium, Sustainable investing, Responsible Investing, SRI, CSR

JEL Classification: G12, G18, G20, G41, Q56