Broken promises: The failure of green stock outperformance in Europe - the importance of rating coherence

Abstract: Increasing interest for sustainable investment have caused a trend within the investment sector towards more ESG engagements. Our study finds no outperformance of green portfolios over brown portfolios, when using industry-adjusted environmental pillar scores. The same applies when controlling for unexpected climate concerns. However, we do find evidence of across-industry greenness having more impact on stock returns when including both measures of greenness. This indicates that within-industry alone does not have the capacity to capture stock return variations to explain any green outperformance. Lastly, we provide evidence that the choice of model in calculating unexpected climate concerns significantly impacts the interaction between greenness and unexpected climate concerns.