The impact of ESG preferences on stock borrowing volumes and fees*

Abstract

Capital market models propose a green premium in expected stock returns due to differing ESG preferences. Green investors favor green stocks, causing a scarcity raising borrowing volumes and fees. Using U.S. stock lending data, we find both green and brown stocks show higher borrowing volumes than neutral ones. However, only green stocks exhibit slightly higher fees, indicating limited supply driven by ESG preferences. Brown stocks show no such constraint. Though statistically significant, the fee premium for green stocks is economically minor – below one basis point – possibly due to weak ESG preferences or green investors neglecting the premium lost when lending.