Pastor, Stambaugh, and Taylor (2022)

Pastor, Lubos, Robert Stambaugh, and Lucian Taylor. “Corporate ESG Profiles and Investor Horizons.” Working paper (University of Chicago), 2022.

From the authors' abstract: 

“Green assets delivered high returns in recent years. This performance reflects unexpectedly strong increases in environmental concerns, not high expected returns… Despite that outperformance, we estimate lower expected returns for green stocks than for brown, consistent with theory. We estimate expected returns in two ways: ex ante, using implied costs of capital, and ex post, using realized returns purged of shocks from climate concerns and earnings. A theoretically motivated green factor explains much of value stocks' recent underperformance..”

LK comment: Outstanding paper, won the 2022 Moskowitz Prize

Moskowitz Prize article: https://www.kellogg.northwestern.edu/news/blog/2023/04/13/moskowitz-prize-2023-awards-green-investments.aspx

Moskowitz Prize research brief: https://www.kellogg.northwestern.edu/-/media/images/focus/social-impact/2022-moskowitz-research-brief.ashx?la=en&hash=D05D63600951ACE804F9A128C47A8992

Link: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3864502