Conference Agenda

We provide the first structural assessment of the U.S. green transition using the

q-theory of investment. Distinguishing emissions-free green capital from emissions-intensive brown capital, we develop a transparent identification strategy that infers

the replacement cost of the brown capital stock directly from observed emissions,

avoiding concerns about greenwashing. Structural estimation yields the market values and adjustment costs of green and brown capital. A pronounced divergence emerges: by 2022, brown capital accounts for 37% of replacement costs but only 22% of market value, indicating that markets value green capital at a premium and discount brown capital. Green investment entails large adjustment costs— 16.7% of output—reflecting both its intensity and the frictions involved in scaling up green capital.

Firms with high pollution face strong environmental scrutiny from investors, regulators, and the public. We find that more polluting firms exhibit greater greenwashing by intensifying positive environmental communication while showing weaker environmental improvements. We further show that greenwashing is associated with higher subsequent environmental ratings, suggesting that external evaluations partly reflect narrative management. Dynamic evidence provides suggestive support that increases in communication precede weaker performance improvements. Exploiting political flips at firms’ headquarters locations, we find that increases in local pro-environmental expectations strengthen the effect of environmental pressure on greenwashing, consistent with firms adjusting disclosure rather than real outcomes.

We investigate whether the unique greenness characteristics of green bonds (GB), i.e., their commitment to allocate proceeds specifically to environmentally sustainable initiatives and regularly report their progress, explain cross-sectional variations in demand for corporate bonds. Leveraging unique information on orderbook size of investment-grade fixed-coupon corporate bonds issued globally from 2013 to 2022, we find that GB attract, on average, about 0.35 to 0.44 times higher demand multiples than comparable non-GB. Importantly, the credibility of this greenness signal appears to depend on the regulatory environment: higher relative demand is observed only in markets with stringent sustainable finance regulations (EU) than in the US or other markets. Our results further show that the issuers' ex-ante greenness profile, i.e., better environmental performance (lower CO2), higher investments in green innovations, and lower ESG risk incidents, drives the heterogeneity in the demand for GB.

This paper examines the unintended consequences of the 2021 publication of revenue eligibility and alignment under the EU Taxonomy. We argue that the explicit classification of “eligible” and “aligned” rev enues generated competitive pressures across industries, as firms faced stronger incentives to signal green performance to attract sustainable f inance. Using a difference-in-differences design, we show that ESG in cidents became significantly more likely after 2021 in industries more exposed to the policy. To explore the underlying mechanism, we construct a firm-level measure of competitive pressure based on the share of eligible revenues reported by close competitors. We find that firms more exposed to these pressures are more likely to be involved in ESG incidents.