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We investigate the impact of corporate environmental and social (ES) risks on the bank loan costs of peer firms linked through shared lenders. Using a regression discontinuity design centered on ES shareholder votes at U.S. public firms from 2005 to 2021, we find that the passage of these proposals results in an average 45-basis-point increase in the subsequent bank loan costs for peer firms. This effect is more pronounced for peers that are geographically closer to focal firms, less financially flexible, or have weaker ES performance, and when proposals resolve greater uncertainty. Surprisingly, the spillover is primarily driven by lenders with less expertise or weaker ex ante incentives to price ES risks. Our evidence suggests that, for these non-specialized banks, the passage of a focal proposal acts as an informational “wake-up call”, prompting a reassessment of ES risks across their lending portfolios. These findings suggest that corporate ES risks affect not only individual firms but also their peers’ borrowing costs through shared lenders.

We develop novel high-frequency indices that measure climate attention across a wide range of developed and emerging economies. By analyzing the text of over 23 million Tweets published by leading national newspapers, we find that a country experiencing more severe climate news shocks tends to see both an inflow of capital and an appreciation of its currency. In addition, brown stocks experience large and persistent negative returns after a global climate news shock {if located in highly exposed countries}. A risk-sharing model in which investors price climate news shocks and trade consumption and investment goods in global markets rationalizes these findings.

A central debate in climate finance concerns whether greener firms earn higher returns. While theory predicts lower expected returns for green stocks, empirical evidence based on realized returns shows the opposite. I reconcile this divergence by developing a climate-integrated production-based asset pricing model that quantitatively explains both expected and realized return differences between green and brown firms. The model incorporates long-run productivity risk and green consumption preferences, and generates two novel mechanisms: (i) green stocks are less exposed to long-run risk, leading to lower expected returns; (ii) positive shocks to green consumption preferences increase green demand, raising realized green returns. Calibrated to U.S. data, the model matches key macro-financial and climate moments, and replicates the dynamics of green–brown returns and investments. Overall, it provides a unified framework linking climate finance with production-based asset pricing.

We develop an information choice model where information costs are sticky and co-move with firm-level intrinsic uncertainty as opposed to temporal variations in uncertainty. Incorporating analysts’ forecasts, we predict a negative relationship between information costs and information acquisition, as proxied by the predictability of analysts’ forecast biases. Finally, the model shows a contrasting pattern between information acquisition and intrinsic and temporal uncertainty, where intrinsic uncertainty strengthens return predictability of analysts’ biases through the information cost channel, while temporal uncertainty weakens it through the information benefit channel. We empirically confirm these opposing relationships that existing theories struggle to explain.

We investigate how optimal attention allocation of green-motivated investors changes information asymmetry in financial markets and thus affects firms’ financing costs. To guide our empirical analysis, we propose a model where investors with heterogeneous green preferences endogenously allocate limited attention to learn market-level or firm-specific fundamental shocks. We find that a higher fraction of green investors in the market leads to higher aggregate attention to green firms. This reduces the information asymmetry of green firms, leading to higher price informativeness and lower leverage. Moreover, the information asymmetry of brown firms and the market increases with the share of green investors. Therefore, greater green attention is associated with less market efficiency. We provide empirical evidence to support our model predictions using U.S. data. Our paper shows how the growing demand for sustainable investing shifts investors’ attention and benefits eco-friendly firms.