The Cost of Sustainable Investing: Global Green Fund Flows and Asset Prices

Abstract

Using the EU Sustainable Finance Action Plan as a natural experiment, we find that flows into "dark green" funds surge after the publication of the June 2020 Taxonomy Regulation, before tapering around the Sustainable Finance Disclosure Regulation in March 2021. The prices of stocks with stronger green fund buying pressures in June 2020 increase further by more than 6% and subsequently reverse, comoving with fund flows. Comprehensive, dynamic analyses of green fund flows and asset prices in global stock markets, augmented with synthetic controls, provide causal evidence on large but transitory impacts of green investing on green asset prices.

Keywords: Sustainable Investing, Green Funds, Flows, Asset Pricing