Over with carbon? Investors’ reaction to the Paris Agreement and the US withdrawal

Lucia Alessi, Stefano Battiston and Virmantas Kvedaras

Journal of Financial Stability, 2024, vol. 71, issue C

Abstract: How financial investors may react to policy events related to sustainability and climate change mitigation in particular, is a key question with implications for sustainable finance and financial stability. We address this question by carrying out a multi-period difference-in-difference approach on a confidential database of securities holdings of the European Central Bank, and we provide evidence of several effects related to the Paris Agreement. In aggregate, investors reduced their participation in the equities of high-carbon firms in response to the agreement, and the trend reverted after the US’s announcement of withdrawal from the agreement. However, the reaction varies across categories and geographies of the securities holders, their ownership size, and the emissions of owned firms. In particular, transition risk has been taken up by less regulated financial institutions and the BRIC countries. Our results highlight that the redirection of global financial flows towards climate action requires clear and unanimous signals from the global community of policy makers.

Keywords: Sustainable finance; Climate finance; Transition risk; Paris agreement; Securities holdings (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:71:y:2024:i:c:s1572308924000172

DOI: 10.1016/j.jfs.2024.101232

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