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The Impact of Green Public Contract Awards on Stock Returns


By Martin Tsanov  |  June 9, 2022

The growing interest in environmental, social, and governance (ESG) investment is likely to propel more companies to pursue a “greener” approach to their operations to attract investors. However, investors will need reliable information sources to get a clear picture of the true sustainability efforts performed by a company.

In fact, as there is little verification of what businesses report with regards to their environmental performance, there are often instances of greenwashing, or the process of conveying a false impression, or providing misleading information about how a company's products are more environmentally sound.

TenderAlpha’s Green Public Procurement Contracts Data Feed, available on the Open:FactSet Marketplace, can be a useful tool in tackling the greenwashing issue as it exclusively uses publicly available official government data. In other words, the data is not self-reported by the companies that have been awarded government contracts. Using a proprietary, discretionary methodology developed by TenderAlpha, contracts are given a “green” contract designation. Contracts are categorized and scored based on the level of actual sustainability effect of the works/services performed under the contract and the potential impact of the contract performance.

Do Firms Awarded “Green” Contracts Outperform?

In a study conducted by Penn State University and TenderAlpha, companies awarded green public contracts show a significant excess return when tested in a three-day event study analysis using market-adjusted cumulative average returns (CARs). The research, led by Mihail Velikov and Han Xiao of Penn State University, leveraged two of TenderAlpha’s alternative data products: the Unified Global Government Contracts Feed and the Global Green Public Procurement Contracts Feed.

Here we describe the data used in this analysis and present the preliminary results.

What is Green Public Procurement?

Green public procurement is a process whereby public authorities procure goods, services, and works with a reduced environmental impact throughout their lifecycle. Green tenders represent the award of works/services based on green tender specifications in addition to traditional supplier selection criteria such as price and technical requirement.

What Counts as a Green Contract?

TenderAlpha has created a discretionary methodology for detecting, categorizing, and rating green public contracts. Contracts are detected based on a three-pillar flagging methodology that “captures” the award of green contracts in real time:

  • Green flag per industry codes: Purchasing of environmentally friendly products and services according to the product category of the contract
  • Green flag per keywords: Detecting the purpose of the contract by searching for specially selected keywords from technical reports and documents in tendering documentation
  • Green flag per legislation and directives: Defined by green procurement regulation (wherever such legislation exists)

Research Results

The preliminary analysis studied the differential response of stock prices to government procurement contract awards. Table 1 below documents the average returns around green (around 4% of contracts) and non-green contracts. This preliminary evidence finds that, on average, the market responds positively to green contract awards.


This result appears to be robust when using both CARs, buy-and-hold average returns (BHARs), and various benchmark models for estimating returns. For example, using market-adjusted CARs, the average green contract award sees a significant 5.6% stock price response.

While this simple test for differences in average returns serves as promising preliminary evidence, the observed difference in stock responses could be driven by other characteristics that systematically differ between stocks that win green contracts and those that win non-green contracts.

To this end, the research team estimated ordinary least squares (OLS) regressions that use the stocks’ returns around the contract awards on a green contract dummy (D) and various controls, including idiosyncratic volatility, size, book-to-market ratio, momentum, leverage, industry competition, and financial constraints, among others. The sample spanned the period 2009 to 2019 and included 1,588 unique firms with 396,534 firm-day (events) observations.

Tables 2 and 3 below show the preliminary results. The conclusion here is consistent with what we found above. Green contract awards to firms are associated with economically and statistically significantly higher stock returns around their announcements relative to non-green contract awards. Once again, the regression results are robust when using BHARs or other benchmark models for returns.



The research team also examined whether the documented difference varies based on the perception of climate change risk. To this end, we used the Crimson Hexagon negative sentiment climate change news index from Engle et al. (2019) and split the sample based on whether the negative sentiment climate change news index for a company is higher or lower than the sample mean. The sample used monthly data from 2009 to 2018.

Table 4 shows the preliminary results. The data indicates that the differential response to green contract awards exists both for periods with high and low climate change risk.



While the evidence from this study is still preliminary, it appears to show that green contract awards are associated with a significant positive market response. We believe that this investment signal will remain strong over time. As more “green” tenders are procured, it is reasonable to expect that the scope of companies will also widen. This will lead to more business opportunities for companies who want to participate in green government contracting and investors who will have a larger pool of potential investment options.

The preliminary research paper using TenderAlpha’s Green Public Procurement Contracts Data Feed can be accessed here.

This blog post has been written by a third-party contributor and does not necessarily reflect the opinion of FactSet. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.

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Martin Tsanov

Co-Founder, Bizportal

Mr. Martin Tsanov is the co-founder of BizPortal and a Product Director at TenderAlpha.com as the only global government procurement data product specifically designated for investment analysis. In this role, Mr. Tsanov is responsible for both product and business development with a special focus on quantitative and ESG research applications of the contract awards data which is also available through the Open:FactSet Marketplace. He has more than 10 years of professional experience combining exposure to investment and capital markets research with working in the public and think tank sectors in the U.S. and Europe. Mr. Tsanov earned an MSc in Political Economy from the London School of Economics and a BA in Political Science from Whittier College in Los Angeles, California.


The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.