Climate Risk Disclosure and Institutional Investors: Evidence from the Insurance Industry

Abstract

We examine whether and how institutional investors respond to mandatory climate risk disclosure. We exploit the staggered adoption of a climate risk disclosure regulation by U.S. states that made the disclosure mandatory for insurers. Leveraging detailed data on insurers' investment portfolios, we document a decline in the proportion of carbon-intensive bonds in the corporate-bond portfolios of the insurers that become subject to the mandate, as compared to the insurers not required to disclose. Our findings provide early evidence that climate risk disclosure affects insurers' investment decisions.

Keywords: Climate Risk; Disclosure; Institutional Investors; Insurance

JEL Classification: G11, G22, G28, Q01, Q50