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The relation between environmental awareness and stock returns

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  • Horn, Matthias
  • Oehler, Andreas
  • Dabbous, Amal
  • Croutzet, Alexandre

Abstract

We analyze the green stock premium and assess if a measure of global environmental awareness can forecast the returns of stocks listed in the MSCI North America All Cap Index from 2010 to 2019. The E-pillar score of Sustainalytics’ ESG rating is used as a proxy for companies' environmental risk. We find that stocks with a higher environmental risk show higher returns and alphas, on average. When environmental awareness among investors increases stock returns decrease, on average. However, stocks of more environmentally friendly companies suffer less during such periods. Therefore, stocks with lower environmental risk reduce the differences in returns and alphas or even show higher returns and alphas than stocks with higher environmental risk.

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  • Horn, Matthias & Oehler, Andreas & Dabbous, Amal & Croutzet, Alexandre, 2025. "The relation between environmental awareness and stock returns," International Review of Economics & Finance, Elsevier, vol. 103(C).
    • Handle: RePEc:eee:reveco:v:103:y:2025:i:c:s1059056025005465
    DOI: 10.1016/j.iref.2025.104383
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    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
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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