Christian Kontz

Do ESG investors care about carbon emissions? Evidence from securitized auto loans


Securitized auto loans present a clean empirical setting to study the effects of ESG investing on equilibrium asset prices and quantities. I find that the convenience yield of ESG investments increased almost threefold from 0.14% in 2017 to 0.39% p.a. in 2022. The pass-through of this convenience yield to consumer interest rates can be substantial for captive lenders, with implied changes in consumer loan demand ranging from 1.05% to 4.77%. However, I document that the market's focus on firm-level ESG scores, rather than the collateral's CO2 emissions, lowers the cost of capital for high-emission auto ABS by 6 basis points; due to a positive correlation between ESG scores and CO2 emissions. ESG mutual funds allocate more capital to auto ABS from issuers with higher ESG scores, even if those securities finance higher-emission vehicles. These findings highlight that while green premia can have a meaningful impact, they do not necessarily increase the cost of emitting CO2.
[Draft]   [SSRN]   [BibTex]

Presentations: FIRS Conference 2024 (scheduled), GRASFI 2024 (scheduled), SoFiE Conference 2024 (scheduled), CEPR-ESSEC-Luxembourg Conference on Sustainable Financial Intermediation (scheduled), UC Santa Cruz, Harvard Climate Economics Workshop, UChicago, USC Marshall, NYU Shanghai/SoFiE Summer School, MFR/IMSI "Assessing the Economic and Environmental Consequences of Climate Change" Conference, Inter-Finance PhD Seminar, German Economist Abroad Conference 2022

Awards: Myron S. Scholes PhD Prize 2024

The Real Cost of Benchmarking

with Sebastian Hanson


This paper documents a novel channel through which benchmarking of asset managers affects firm behavior. We causally show that increases in a stock's benchmarking intensity lead to a higher CAPM β. Stocks whose benchmarking intensity increases by more than 5p.p. have 17% higher CAPM βs after 9 months. These changes in CAPM βs are not driven by changes in firm fundamentals. Using an instrumental variable design, we show that firms which experience higher CAPM βs because of higher benchmarking intensity have 5% less capital and hold 15% more cash after 5 years. The results suggest that benchmarking has important effects on firm behavior and real quantities, driven by changes in the perceived cost of capital.
[Draft available upon request]

Presentations: Inter-Finance PhD Seminar (scheduled)

ESG induced capital misallocation: Is ESG doing good, by doing well?


This paper studies the impact of environmental, social, and governance (ESG) investing on the real economy. Using within industry-year variation, I show that 1.) firms with high ESG ratings have low marginal revenue products of capital (MRPK), while, 2.) firms with high sales per tCO2 emission have high MRPKs. This implies that reallocating capital to firms with high ESG ratings lowers allocative efficiency while reallocating capital to greener firms increases it. I further document that 3.) capital investment by firms with high ESG ratings is less sensitive to Tobin’s Q, 4.) capital allocation decisions of ESG mutual funds are not sensitive to the MRPK of their portfolio firms. Motivated by these facts, I structurally estimate a dynamic investment model featuring convenience yields on ESG assets and a CO2 externality. I use the model to explore the implications of ESG investing for misallocation of capital, aggregate total factor productivity, and as a tool for climate change mitigation. I simulate a counterfactual economy where capital investors internalize the CO2 emission instead of ESG convenience yields.