Sustainability generally refers to the ability to meet present needs without compromising the ability of future generations to meet their own needs. Among the many aspects of sustainability, the ones that receive the most attention are Environmental, Social, and Governance, which form the basis of the widespread ESG acronym. 

But how concerned are investors about sustainability? Are cash flows from sustainable assets valued differently with respect to identical cash flows from non-sustainable assets? Answers to these questions can be found by studying the prices of actively traded assets, which reflect the views of market participants. One way to do this is by forming portfolios that create real-time measures of investors’ concern about sustainability. These indicators can be helpful both to practitioners assessing which sustainable enterprises to fund and to policymakers evaluating the impact of sustainability-promoting policies.

The most common approach in the scientific literature is to form a portfolio that earns money when the value of assets deemed “sustainable” increases while losing money when the value of “dirty” assets rises. The returns of such a portfolio are considered to mirror the intensity of investors’ concern about sustainability. However, results regarding environmental sustainability are highly mixed. Some studies find that investors positively value sustainability and attach a greater value to green assets, while others find the opposite. A potential explanation of this divergence in different studies comes from "Are You Betting On Sustainability?" (Franceschini, 2024). This work highlights an issue with this methodology and provides more reliable evidence. Sustainability is shown to be broadly appreciated, i.e. lower returns are required to hold sustainable assets, although the strength does vary depending on the benchmark model, while “sustainable” portfolios are also shown to be detached from the sustainability concern priced.