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

64 Pages Posted: 22 Jun 2020 Last revised: 11 May 2021

See all articles by Martin Rohleder

Martin Rohleder

University of Augsburg

Marco Wilkens

University of Augsburg

Jonas Zink

University of Augsburg

Date Written: May 11, 2021

Abstract

This study answers the question of whether mutual fund decarbonization affects stock prices of divested firms and if this contributes to the reduction of the carbon emissions of these firms. Using a new methodology to identify decarbonization trades in a comprehensive dataset of equity mutual fund holdings and firm-level carbon emissions, we calculate a metric of funds’ decarbonization sell 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 is consistent with well-known theoretical predictions. Various tested alternative explanations like 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 are able to reduce firms’ 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 (May 11, 2021). 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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