Carbon home bias of European investors

Martijn Boermans and Rients Galema

Journal of Corporate Finance, 2025, vol. 92, issue C

Abstract: This study investigates a phenomenon we call “carbon home bias”: the tendency of investors to disproportionately allocate investments towards domestic carbon-intensive assets. Using a confidential security-by-security euro area holdings database, we show that European investors favor domestic over foreign carbon-intensive investments. We provide evidence for substantial carbon home bias, utilizing a newly developed measure of portfolio carbon home bias that measures domestic carbon bias in excess of home bias. Our study highlights home advantages as possible motivation for carbon home bias. Using the introduction of the French Energy Law Article 173 as a positive shock to decarbonization incentives, we find that French institutional investors maintain their domestic carbon-intensive holdings, while other European institutional investors reduce theirs. Higher domestic institutional ownership is associated with about 50% lower carbon emissions in the five years after the regulatory change and excess returns of about 3% per year. Our results further provide evidence for a foreign carbon premium, while the domestic carbon premium is insignificant. Consequently, the phenomenon of carbon home bias cannot be attributed to differences between home and foreign carbon risk premia.

Keywords: Home bias; Institutional ownership; Carbon footprint; Divestment; Securities holdings statistics (search for similar items in EconPapers)
JEL-codes: G11 G15 G23 H55 Q54 Q56 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0929119925000161
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Carbon home bias of European investors (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:92:y:2025:i:c:s0929119925000161

DOI: 10.1016/j.jcorpfin.2025.102748

Access Statistics for this article

Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter

More articles in Journal of Corporate Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().