Does corporate environmental responsibility create value?: The role of investors' ESG preferences

We exploit novel micro -level emission data to investigate whether corporate environmental responsibility enhances stock value. This green premium is more pronounced for firms located in regions where residents have high social trust or held by shareholders with long-term investment horizons. The results suggest that the positive shocks in demands for corporate environmental responsibility among market participants drive the differences in returns between firms that successfully transition to a green economy and those that do not. Overall, the results underline the pivotal role of investor preference for ESG in generating the green premium.