No. 66 - Is there an equity greenium in the euro area?

7 October 2025

Banca d'Italia today publishes 'Is there an equity greenium in the euro area?', the new issue of the series 'Markets, infrastructures, payment systems'.

This paper examines the risk-return profile of sustainable equity investment strategies in the euro area in order to assess the presence of a return differential compared to the market index (equity greenium). The equity greenium includes a component related to financial risk (risk premium) and a component associated with investors' possible preference for ESG themes (preference premium). We find that the returns on sustainable investments diverge from market returns; this result is due to the different exposure to financial risk factors (risk premium), and not to the preference premium. Going forward, the emergence of certain risks not fully priced in and changes in investor preferences could lead to price adjustments and new market equilibria. This suggests the need for close monitoring of the relationship between sustainable investment strategies and the traditional ones.