Environmental Impact Investing
60 Pages Posted: 13 Apr 2020 Last revised: 14 Jul 2020
Date Written: July 14, 2020
This paper shows how green investing spurs companies to reduce their greenhouse gas emissions by raising their cost of capital. Companies' emissions decrease when the proportion of green investors and their environmental stringency increase. However, heightened uncertainty regarding future environmental impacts alleviates the pressure on the cost of capital for the most carbon-intensive companies and pushes them to increase their emissions. We provide empirical evidence supporting our results by focusing on United States stocks and using green fund holdings to proxy for green investors' beliefs. When the fraction of assets managed by green investors doubles, companies' carbon intensity drops by 5% per year.
Keywords: Environmental finance, socially responsible investing, ESG, impact investing
JEL Classification: G12, G11
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