This paper analyzes sustainable investing in equilibrium, showing how environmental, social, and governance (ESG) preferences influence asset prices, portfolio allocations, and real-world outcomes. The model features heterogeneous firms and agents, with green firms generating positive externalities and brown firms imposing negative ones. Agents differ in their ESG preferences, which affect their portfolio choices and asset prices. The model shows that green assets have negative CAPM alphas, while brown assets have positive alphas, leading to lower expected returns for agents with stronger ESG preferences. However, these agents derive utility from holding green assets, leading to a "investor surplus." The ESG factor, defined as a scaled return on the ESG portfolio, plays a key role in pricing assets in a two-factor model. The ESG factor captures shifts in ESG concerns, which can come from changes in customer preferences or investor tastes. The model shows that green assets outperform brown assets when ESG concerns strengthen unexpectedly. The ESG investment industry is largest when ESG preferences are most dispersed. The model also shows that sustainable investing has positive social impact by making firms greener and shifting real investment toward green firms. The model is extended to include climate risk, showing that climate risk commands a premium. The paper concludes that sustainable investing has positive social impact and that ESG preferences influence asset prices and real-world outcomes.This paper analyzes sustainable investing in equilibrium, showing how environmental, social, and governance (ESG) preferences influence asset prices, portfolio allocations, and real-world outcomes. The model features heterogeneous firms and agents, with green firms generating positive externalities and brown firms imposing negative ones. Agents differ in their ESG preferences, which affect their portfolio choices and asset prices. The model shows that green assets have negative CAPM alphas, while brown assets have positive alphas, leading to lower expected returns for agents with stronger ESG preferences. However, these agents derive utility from holding green assets, leading to a "investor surplus." The ESG factor, defined as a scaled return on the ESG portfolio, plays a key role in pricing assets in a two-factor model. The ESG factor captures shifts in ESG concerns, which can come from changes in customer preferences or investor tastes. The model shows that green assets outperform brown assets when ESG concerns strengthen unexpectedly. The ESG investment industry is largest when ESG preferences are most dispersed. The model also shows that sustainable investing has positive social impact by making firms greener and shifting real investment toward green firms. The model is extended to include climate risk, showing that climate risk commands a premium. The paper concludes that sustainable investing has positive social impact and that ESG preferences influence asset prices and real-world outcomes.