Stock Prices and the Russia-Ukraine War: Sanctions, Energy and ESG
53 Pages Posted: 27 May 2022 Last revised: 23 Jun 2022
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War and Policy: Investor Expectations on the Net-Zero Transition
Date Written: April 2022
Abstract
In the build-up to and especially in the weeks after the Russian invasion of Ukraine, stocks more exposed to the regulatory risks of the transition to a low-carbon economy performed better, suggesting that investors expect a slow-down of that transition. Moreover, analysts increased their earnings estimates for these stocks. The stock price effects for transition risk were particularly strong in the US. In Europe, the effects for transition risk were less pronounced or even opposite. Stocks with opportunities in the low-carbon transition benefited, arguably because market participants expect stronger policy responses supporting renewable energy sources in the face of the pronounced dependence of Europe on Russian oil and gas. In sum, investors thus expect the speed of transition to a low-carbon economy to diverge between the US and Europe. The analysis controls for a range of different Environmental, Social, and Governance (ESG) measures (for which we obtain mixed results). Companies that more frequently refer to inflation in their conference calls with analysts performed worse. Internationally oriented firms did poorly, and investors were particularly concerned regarding companies' exposure to China. Overall, the results offer a preview of the challenging economic impact of the Russia-Ukraine war.
Keywords: Climate transition risk, Energy, ESG, Event studies, inflation, resilience, Russia-Ukraine war, Stock returns
JEL Classification: E3, G01, G14, Q54
Suggested Citation: Suggested Citation