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Sustainable Investing and Public Goods Provision

Author

Listed:
  • Ilaria Piatti

    (Queen Mary University of London)

  • Joel Shapiro

    (Said Business School, University of Oxford)

  • Xuan Wang

    (SBE Vrije Universiteit Amsterdam and Tinbergen Institute)

Abstract

We model investors that take into account the amount of public good that firms produce (e.g., by reducing carbon emissions) when making their portfolio allocation. In an equilibrium asset pricing model with production and public goods provision, we find that environmentally conscious investors invest more than others, invest more in clean firms, and may invest more in dirty firms. Whether clean firms exhibit CAPM alphas depends on the amount of systematic risk of the firm and its relative contribution to the public good. There is underprovision of the public good in equilibrium. Lower government provision may lead to a surge in investment and government provision may be dominated by green subsidies. Finally, we extend the model to analyze negative externalities, donations, and uncertainty regarding public good provision.

Suggested Citation

  • Ilaria Piatti & Joel Shapiro & Xuan Wang, 2023. "Sustainable Investing and Public Goods Provision," Working Papers 969, Queen Mary University of London, School of Economics and Finance.
    • Handle: RePEc:qmw:qmwecw:969
    as

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    File URL: https://www.qmul.ac.uk/sef/media/econ/research/workingpapers/2022/wp969.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Sustainable finance; ESG investing; public good pro-vision; asset pricing;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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