Abstract: We investigate whether mutual fund families favor their ESG funds at the expense of their non-ESG siblings. We find that the net-of-style return spread of ESG compared to non-ESG funds within the fund family is significantly greater than the gap with non-ESG matches outside the family. The difference is around 2% per year, indicating sizable cross-fund subsidization that is mainly used to avoid the underperformance of ESG funds. We link these differences to various fund and family characteristics and relate the observed effects to measures of environmental awareness and fund flows. Additionally, we investigate potential mechanisms of ESG favoritism. 

We provide an Internet Appendix here.

Presentations: Adam Smith Sustainability Conference, AWG 2024*, C.r.e.d.i.t. 2024*, Massey Sustainable Finance Conference 2024, Australasian Finance and Banking Conference 2024*, DGF 2025°, and SFA 2025°.

Abstract: We characterize the demand for green securities based on institutional holdings of US corporate bonds. The generally positive demand for greenness shows significant time variation, with the highest average levels around the Paris Agreement in 2016 and a sharp decline during the Trump administration. The demand and its variation following exogenous events significantly affect prices and investors' wealth. We also document real effects of investors' greenness preferences at the corporate level. In particular, we find an association between increases in greenness demand and subsequent enhancement of firms' environmental performance, as well as with more frequent bond issues and larger face values chosen by greener firms.

We provide an Internet Appendix here.

Presentations: Adam Smith Sustainability Conference*, AWG 2024, DGF 2024, C.r.e.d.i.t. 2024, SGF 2025, FMA Europe 2025, AFS 2025, SFA 2025°, and AFA 2026°.

Abstract: We study the effects of ESG performance and preferences on the U.S. corporate bond market. Consistent with the theory, we show that firms with superior ESG scores benefit from lower yields and improved liquidity. In addition, we reveal a time-varying effect of ESG performance induced by a changing demand of investors for ESG securities. The effect on yields for firms with higher ESG performance in times of higher ESG preferences is up to 25 bp. Furthermore, we divide a firm's ESG performance into its underlying pillars E, S, and G, finding that the results are mainly driven by environmental concerns. Overall, our results provide evidence for theoretical models based on non-pecuniary utility benefits for ESG investors. 

Presentations: AWG 2022*, DGF 2022, and Australasian Finance and Banking Conference 2022.