Global Carbon Divestment and Firms' Actions
32 Pages Posted: 29 May 2020
Date Written: April 30, 2020
We examine the actions of financial institutions and firms regarding greenhouse gas emissions. We find that financial institutions around the world reduce their exposure to stocks of high-emission industries after 2015, especially for those located in high-climate-awareness countries, suggesting that institutions are concerned about climate risks in recent years. In the presence of divestment, firms in the same countries tend to experience lower price valuation ratios, which make equity financing costlier, but they increase capital expenditure and research and development (R&D) expenses and reduce emissions resulting from their operations. Our results support the notion that divestment campaigns by financial institutions exert pressure on firms to adopt climate-friendly policies and decrease carbon footprints.
Keywords: Divestment, Carbon Emissions, Climate Awareness, Financial Institutions, Climate Change
JEL Classification: D83, G11, G15, G23, Q54
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