In Search of the True Greenium

76 Pages Posted: 4 Apr 2024 Last revised: 17 May 2024

See all articles by Marc Eskildsen

Marc Eskildsen

Copenhagen Business School - Department of Finance

Markus Ibert

Copenhagen Business School - Department of Finance; Swedish House of Finance

Theis Ingerslev Jensen

Yale University

Lasse Heje Pedersen

AQR Capital Management, LLC; Copenhagen Business School - Department of Finance; New York University (NYU); Centre for Economic Policy Research (CEPR)

Date Written: March 4, 2024

Abstract

The greenium (the expected return of green securities relative to brown) is a central impact measure for ESG investors. Replicating the literature’s wide range of equity greenium estimates based on realized returns, we find that these are not robust to changing the greenness measure or time period. Instead, we propose a robust green score combined with forward-looking expected returns, yielding a more precisely estimated annual equity greenium of -25 basis points per standard deviation increase in greenness. The greenium is more negative in greener countries and over time. Finally, we provide greeniums for corporate bonds, weighted-average costs of capital, and sovereign bonds.

Keywords: Greenium, cost of capital, ESG, replication, climate, sustainable finance

JEL Classification: G11, G12, H23, Q5

Suggested Citation

Eskildsen, Marc and Ibert, Markus and Jensen, Theis Ingerslev and Pedersen, Lasse Heje, In Search of the True Greenium (March 4, 2024). Available at SSRN: https://ssrn.com/abstract=4744608 or http://dx.doi.org/10.2139/ssrn.4744608

Marc Eskildsen

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Copenhagen, Frederiksberg 2000

Markus Ibert

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3, SOL/A4.17
Copenhagen, Frederiksberg 2000

Swedish House of Finance ( email )

Drottninggatan 98
Stockholm, 11160
Sweden

Theis Ingerslev Jensen

Yale University ( email )

493 College St
New Haven, CT CT 06520
United States

Lasse Heje Pedersen (Contact Author)

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg, DK-2000
Denmark

New York University (NYU) ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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