Responsible Consumption, Demand Elasticities, and the Green Premium

Investigator

• Lorenzo Garlappi
• Ali Lazrak

Background

The urgency of addressing climate change has heightened societal expectations for organizations to improve their environmental, social, and governance (ESG) performance. While responsible investment—avoiding stocks of companies with poor ESG records—has gained traction, responsible consumption as a form of activism has received less focus. This oversight is notable given evidence that individuals seek to reduce their negative environmental impact through mindful consumption choices, aiming to influence corporate practices and contribute to climate change mitigation.
 

Research Objectives

This research aims to explore the impact of socially responsible consumption on financial markets and the real economy. It investigates how consumer activism, by influencing the demand for products from companies with poor environmental records, affects these companies' financial performance and market valuation. The study will examine the paradox where consumer activism could potentially lower the cost of capital for targeted firms, thereby undermining efforts to combat climate change. It proposes that effective consumer activism should focus on products with low demand elasticity to align social values with environmental outcomes, offering new insights into the dynamics between consumer behaviour, financial markets, and corporate environmental responsibility.