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Abstract
We investigate the impact of sustainable investing—the investing practice that accounts for environmental/societal/governance factors—in a macroeconomic model with dynamic general equilibrium forces. Preference-driven sustainable investing impacts firms’ cost of capital and investors’ saving incentives, resulting in a dynamic feedback loop between productive capital reallocation and investor wealth ownership. We investigate the magnitude and timing of the impact in a calibrated quantitative model where sustainable preferences are disciplined by estimated portfolio return differentials. We finally present a policy implementation exercise that highlights the potential and the limits of sustainable investing as a market-driven mechanism to deliver policy-relevant macroeconomic impact.
Citation
Xintong Li and Giacomo Rondina, September 2026. “The Macroeconomic Impact of Sustainable Investing,” mimeo UCSD