Greenness Demand For US Corporate Bonds

We characterize the demand for green securities based on institutional holdings of US corporate bonds. The generally positive demand for greenness shows significant time variation, with the highest average levels around the Paris Agreement in 2016 and a sharp decline during the Trump administration. The demand and its variation following exogenous events significantly affect prices and investors' wealth. We also document real effects of investors' greenness preferences at the corporate level. In particular, we find an association between increases in greenness demand and subsequent enhancement of firms' environmental performance, as well as with more frequent bond issues and larger face values chosen by greener firms.