Sustainable Investing Has Lower Cost of Capital: Shows Moskowitz Prize Winner Climate Capitalists

This year’s Moskowitz Prize winners are Niels Joachim Gormsen and Kilian Huber of the University of Chicago Booth School of Business, along with Sangmin S. Oh of Columbia Business School, who authored Climate Capitalists. Climate Capitalists demonstrates how sustainable investing is not just a moral or reputational exercise, but a real driver of corporate behavior through capital markets. For investors, regulators, and ESG consultants, this research offers robust evidence that the financial system can help accelerate the transition to a low-carbon economy.

Why This Matters

Climate Capitalists asks a fundamental question Does sustainable investing change how firms operate? And if so, how does this change happen? The authors analyze corporate earnings calls from 730 companies between 2002 and 2023 and link this qualitative data to MSCI environmental scores.

• Lower Perceived Cost of Capital: The authors found that since 2016, green firms that engaged in environmentally sustainable practices have consistently enjoyed a lower perceived cost of capital compared to brown firms.

• One Percentage Point Less Cost of Capital: On average, the difference is about one percentage point, a material advantage in financial terms.

Details

This research serves as evidence of financial market dynamics actively rewarding environmental performance. The findings show that as investor demand for sustainable assets has grown, markets have priced capital more cheaply for green firms, both encouraging and enabling them to make greener investments. This mechanism challenges the often-assumed tradeoff between doing good and doing well. It suggests that market forces themselves are incentivizing environmental responsibility, even in the absence of regulatory mandates like carbon taxes.

The Prize and Its Broader Relevance

The Moskowitz Prize is awarded each year to the paper best representing outstanding research on sustainable and responsible investing and the financial implications of responsible business practices in capital markets.

The Moskowitz Prize recognizes outstanding quantitative research papers that are relevant to investment practitioners in sustainable and responsible finance. Although the prize is usually awarded to a finance paper, past winners have been from the fields of economics and management as well.

Winners of the Moskowitz Prize receive a cash award and are invited to present their findings to the global Impact & Sustainable Finance Faculty Consortium, of which Responsible Alpha is a member, reinforcing the link between research and practice.

The prize is named for Milton Moskowitz (1932-2019), one of the field’s first and most innovative investigators, whose pioneering legacy continues through the Moskowitz Prize. In 2020 the Moskowitz Prize became an initiative of Northwestern University’s Kellogg School of Management. First presented in 1996 by the U.S. Social Investment Forum, the Prize was awarded by UC Berkeley's Haas School of Business from 2005-2019. Kellogg is honored to carry forward the legacy of work that has made the Prize the most prestigious research award in sustainable finance.

Milton Moskowitz was an extraordinary, forward thinking, business journalist that believed that

treating employees well and being a good corporate citizen was a strong investment thesis for long-term investors.

Moskowitz wrote a nationally syndicated column three times a week from 1968 to 1986 and published seven books. In 1968, Moskowitz also launched Business & Society, the first business newsletter

focused on the role companies played in the lives of their employees, in their communities, and in society at large.

Furthermore, in 1972, Moskowitz began publishing a list of “responsible” stocks in Business & Society in order to track them against broad market indices and the first socially responsible mutual funds. In 1984, he co-authored the landmark book, the 100 Best Companies to Work for in America.