The Green Innovation Premium

Markus Leippold, Tingyu Yu

2023 | Academic | Greenium

This paper introduces a novel firm-level green innovation measure utilizing ClimateBERT and GPT-3 models to analyze green patent abstracts and earnings call transcripts. Firms with higher green innovation measures experienced lower expected returns: a long-short portfolio generates an average annual return of 6%, which remains significant after accounting for common risk factors. However, these firms began to outperform in the last two years, attributed to a sharp increase in attention towards green innovation.