Green Revenues

Authors: Johannes Klausmann, Philipp Krueger & Pedro Matos

Abstract: Using a novel measure of a firm’s green revenues, this paper sizes up the green economy. We shed light on the drivers behind global public firms increasing business activities that help with the transition to a low-carbon and more environmentally sustainable economy. Our analysis shows that the green economy grew at an accelerated pace after the Paris Agreement. This green shift is driven by innovative US firms converting green patents into actual revenues from green products and services. Additionally, we find that several regulatory initiatives have led to an acceleration in the growth of the green economy in Europe. While responsible institutional investors are more likely to be invested in firms with higher green revenues, we do not find their presence to be associated with the post-Paris shift. Finally, we examine the stock returns of firms with high green revenues and find only modest evidence of a green alpha which seems to be concentrated in US stocks in the post-Paris period.