From a field of over 160 submitted papers, “Dissecting Green Returns” was selected as the winner of the 2022 Moskowitz Prize at Northwestern University. The award, which recognizes high-impact research in sustainable finance, was presented to the paper’s authors, Lubos Pastor (University of Chicago Booth School of Business), Robert Stambaugh (the Wharton School), and Lucian Taylor (the Wharton School).

The Moskowitz Prize, now in its 27th year, is awarded annually to a research paper that demonstrates both impeccable empirical methods and strong potential to influence real-world business and investment practices related to sustainability.

“The study identifies a green factor that has impacted asset prices and portfolio returns in recent years,” said Lloyd Kurtz, founder of the Moskowitz Prize and one of this year’s judges. “They show that superior returns of green stocks were at least partly due to a change in investor preferences. But outperformance likely won’t continue over the long term. That’s good for green companies because it gives them a lower cost of capital—a big advantage in a competitive economy. It’s an important paper for showing that sustainability is now priced into markets and past strong returns don’t guarantee future ones.”

The paper aimed to understand what kind of returns investors should expect from green (environmentally friendly) versus brown assets in the future. Theory suggests that investors derive satisfaction from owning responsible investments, and that green assets can hedge against climate risk, which should drive prices higher and the expected rate of return lower.