The Effects of Mutual Fund Decarbonization on Stock Prices and Carbon Emissions

1 Pages Posted: 22 Jun 2020 Last revised: 27 Dec 2021

See all articles by Martin Rohleder

Martin Rohleder

University of Augsburg

Marco Wilkens

University of Augsburg

Jonas Zink

University of Augsburg

Date Written: October 29, 2021

Abstract

This study seeks to determine whether mutual fund decarbonization affects the stock prices of divested firms and contributes to the reduction of these firms’ carbon emissions. Using a new methodology to identify equity mutual funds’ decarbonization trades, we calculate a metric of decarbonization selling pressure (DSP) on stocks. Controlling for endogeneity and selection bias, we find that high DSP sustainably pressures stock prices downwards. Furthermore, we find that divested firms experiencing a stock price decline subsequently reduce their carbon emissions compared to non-divested firms. This finding is consistent with theoretical predictions. Various tested alternative explanations, such as shareholder intervention and financial selling pressure, cannot diminish these results. Overall, our findings support the divestment movement’s hope that a critical mass of investors is able to reduce carbon emissions.

Keywords: Mutual funds, decarbonization, divestment, price pressure, carbon intensity, climate change, carbon emissions, impact investing

JEL Classification: G11, G12, G14, G23, Q51, Q54

Suggested Citation

Rohleder, Martin and Wilkens, Marco and Zink, Jonas, The Effects of Mutual Fund Decarbonization on Stock Prices and Carbon Emissions (October 29, 2021). Journal of Banking and Finance, Volume 134, January 2022, 106352, Available at SSRN: https://ssrn.com/abstract=3612630 or http://dx.doi.org/10.2139/ssrn.3612630

Martin Rohleder

University of Augsburg ( email )

Universitaetsstr. 16
Augsburg, 86159
Germany
+49 821 598 4120 (Phone)

Marco Wilkens

University of Augsburg ( email )

Universitaetsstr. 16
Augsburg, 86159
Germany
+49 821 598 4124 (Phone)
+49 821 598 4223 (Fax)

HOME PAGE: http://www.wiwi.uni-augsburg.de/bwl/wilkens/team/wilkens_marco/

Jonas Zink (Contact Author)

University of Augsburg ( email )

Universitätsstr. 16
Augsburg, 86159
Germany
0049 821 598 4045 (Phone)

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