Sustainable investing has expanded rapidly worldwide, yet the magnitude—and even the existence—of a sustainability risk premium (SRP) remains contested. We develop a pricing framework in which a sustainability-contingent claim is priced primarily for its hedging value against sustainability underperformance, and its return therefore identifies the market price of sustainability risk, with a magnitude that increases in the fraction of sustainable capital participating in the market of this type of claims. We use sustainability-linked bonds (SLBs) as an empirical proxy for this contingent claim and estimate the market price of sustainability risk in the SLB market. We find that, at the current participation rate of sustainable capital in this market, investors are willing to forgo roughly 0.55% of expected return at the bond level to insure against downside sustainability outcomes—the direct evidence of SRP. In contrast, our framework clarifies why tests based on traditional assets yield mixed results: sustainable investors represent only a small share of the broad markets, and sustainability exposures enter the expected return through offsetting risk and non-pecuniary preference channels, resulting in a negligible premium.

We compute the U.S. corporate sector's ``carbon burden"---the present value of social costs of future carbon emissions. Our baseline estimate is 131% of total corporate equity value. Meeting the Paris Agreement goals would reduce the burden by roughly one-fourth, but emissions forecasts and firms' own targets fall short of that reduction. 13% of firms have carbon burdens exceeding their market capitalizations, even with indirect emissions excluded. Firms with higher carbon burdens have higher costs of capital, even after controlling for past emissions. Only a small fraction of the burden is priced through that channel, however.

We study how capacity constraints in electricity grids shape production, firm value, and risk. We develop a general-equilibrium model in which electricity is a non-storable input subject to proportional rationing when aggregate demand exceeds grid capacity. The anticipation of future scarcity reduces firms' investment and output, while stochastic tightness generates a priced risk factor. Using U.S. data on firms' plant locations matched with measures of electricity outages and forecasted capacity, we show that tighter constraints reduce employment, investment, profitability, and firm value. Firms exposed to electricity tightness earn higher returns unexplained by standard factors.