Niels Joachim Gormsen, Kilian Huber, and Sangmin Oh – Working Paper, February 2023
“Green investing” has real effects if green firms actually reduce their perceived cost of capital and discount rate in response to green investing. We find that the difference in the perceived cost of capital between the greenest and the brownest firms has fallen since 2016, concurrent with the rise of green investing. Discount rates followed a similar pattern. A survey sheds light on the mechanisms. In a simple model, the observed differences reduce firm-level emissions by 20 percent.