Showing off Cleaner Hands: Mandatory Climate-Related Disclosure by Financial Institutions and the Financing of Fossil Energy
38 Pages Posted: 7 Jan 2021 Last revised: 14 Jul 2022
Date Written: November 18, 2020
Abstract
We investigate the real effects of mandatory climate-related disclosure by financial institutions on the funding of carbon-intensive industries. Our impact metric is the amount invested into securities, bonds and stocks, issued by fossil fuel companies. A French law, which came into force in January 2016 in the aftermath of the Paris Agreement on climate change, provides us with a quasi-natural experiment. The new regulation, unique in Europe at that time, requires institutional investors (i.e., insurers, pension funds and asset management firms), but not banks, to report annually on both their climate-related exposure and climate change mitigation policy. Using a unique dataset of security-level portfolio holdings by each institutional sector in each euro area country, we compare the portfolio choices of French institutional investors with those of French banks and financial institutions located in other countries. We find robust evidence that French investors subject to the new disclosure requirements curtailed their financing of fossil energy companies compared to other investors in the euro area.
Keywords: carbon disclosure, institutional investors, fossil energy, divestment
JEL Classification: G11, G15, G23, H55, Q54, Q56
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