Showing off cleaner hands: mandatory climate-related disclosure by financial institutions and the financing of fossil energy

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 by some 40%
compared to investors in the control group.

Keywords: Bilan carbone, investisseurs institutionnels, énergie fossile, désinvestissement.

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