Where is the greenium?

Abstract

where’s the greenium? david f. larcker graduate school of business stanford university rock center for corporate governance dlarcker@stanford.edu edward m. watts graduate school of business stanford university edwardmwatts@stanford.edu february 22, 2019 abstract this study investigates whether investors are willing to trade-off wealth for societal benefits. we take advantage of unique institutional features of the municipal securities market to provide insight into this question. since 2013, over $23 billion green bonds have been issued to fund eco-friendly projects. comparing green securities to nearly identical securities issued for non-green purposes by the same issuers on the same day, we observe economically identical pricing for green and non-green issues. in contrast to a number of recent theoretical and experimental studies, we find that in real market settings investors appear entirely unwilling to forgo wealth to invest in environmentally sustainable projects. when risk and payoffs are held constant, municipal investors view green and non-green securities by the same issuer as almost exact substitutes. thus, the “greenium” is essentially zero. jel classification: g12, g14, g20. keywords: environmental, social and governance (esg), socially responsible investing (sri), municipal bonds, green bonds. we gratefully acknowledge the support of the stanford rock center for corporate governance and stanford graduate school of business centers & initiatives for research, …

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