Scientific Beta

Financial Investigator: "Low carbon investing products are typically built on the assumption that green stocks produce positive alpha. Economic theory contradicts this assumption: all else being equal, green firms should earn lower returns than brown firms because they provide non-pecuniary benefits and risk-hedging benefits to investors. The empirical literature does not support the claim of positive alpha for low emission firms either."

Financial Investigator 07/06/2021

 

"(...) Low carbon investing products are typically built on the assumption that green stocks produce positive alpha. Economic theory contradicts this assumption: all else being equal, green firms should earn lower returns than brown firms because they provide non-pecuniary benefits and risk-hedging benefits to investors. The empirical literature does not support the claim of positive alpha for low emission firms either. This paper analyses how low carbon strategies can be mistaken for alpha and what the consequences are for investors. (...)" 

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