Is the Stock Market Worried About Climate Change? Lessons from the 2010s

Abstract

On Christmas Eve 2019 the MIT Technology Review published an article entitled, The 2010s were another lost decade on climate change. On New Year’s Day the Washington Post published a longer article with the same title. Both pieces told basically the same story, one repeated by many environmentalists and climate experts, the failure to take meaningful action on climate change in the 2010s had dramatically exacerbated the problem. This article investigates how the stock market reacted to the negative climate related news that emerged during the 2010s. The results suggest that at an aggregate level the stock market was unconcerned about the climate news implying that the market believed that climate change would not have a major impact on future macro economic growth. There is evidence, however, that the market concluded that climate issues would be a significant problem for fossil fuels companies.

Keywords: climate change, stock market, valuation

JEL Classification: G00, G10