The Bank of Italy published a research paper assessing whether sustainable equity investment strategies in the euro area exhibit an “equity greenium”, defined as a return differential versus the market index. The paper finds that sustainable equity returns do diverge from market returns, but attributes this to differences in exposure to financial risk factors rather than to an investor “preference premium” for ESG themes. The analysis distinguishes the equity greenium into a financial risk component (risk premium) and a component linked to investors’ ESG preferences (preference premium). It notes that the emergence of risks not fully priced in and shifts in investor preferences could still trigger price adjustments and new market equilibria, implying the need to closely monitor the relationship between sustainable and traditional equity strategies.
Bank of Italy 2025-10-07
Bank of Italy research finds euro area sustainable equity return differences driven by risk premia not ESG preferences
The Bank of Italy's research paper examines if sustainable equity investment strategies in the euro area show an "equity greenium," defined as a return differential compared to the market index. The study finds that sustainable equity returns differ from market returns due to financial risk factors rather than an investor "preference premium" for ESG themes. It highlights the potential for unpriced risks and changing investor preferences to impact prices and market equilibria, suggesting the need for monitoring.