Showing off Cleaner Hands: Mandatory Climate-Related Disclosure by Financial Institutions and the Financing of Fossil Energy

42 Pages Posted: 7 Jan 2021 Last revised: 15 Jul 2021

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 all financial institutions located in other EA countries. We find that investors subject to the new disclosure requirements curtailed their financing of fossil energy companies compared to investors in the control group.

Keywords: carbon disclosure, institutional investors, fossil energy, divestment

JEL Classification: G11, G15, G23, H55, Q54, Q56

Suggested Citation

Mésonnier, Jean-Stéphane and Nguyen, Benoît, Showing off Cleaner Hands: Mandatory Climate-Related Disclosure by Financial Institutions and the Financing of Fossil Energy (November 18, 2020). Available at SSRN: https://ssrn.com/abstract=3733781 or http://dx.doi.org/10.2139/ssrn.3733781

Jean-Stéphane Mésonnier (Contact Author)

Banque de France ( email )

Paris
France
+33 (0)1 42 92 91 63 (Phone)

Benoît Nguyen

Banque de France ( email )

Paris
France

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