Over With Carbon? Investors’ Reaction to the Paris Agreement and the US Withdrawal

63 Pages Posted: 15 Sep 2022

See all articles by Alessi Lucia

Alessi Lucia

Joint Research Center of the European Commission; Università degli Studi di Milano-Bicocca - Center for European Studies (CefES)

Stefano Battiston

University of Zurich - Department Finance; Ca Foscari University of Venice

Virmantas Kvedaras

Joint Research Centre, European Commission

Date Written: August 31, 2022

Abstract

How financial investors may react to policy events related to sustainability and climate change mitigation in particular, is a key question with implications for sustainable finance and financial stability. We address this question by carrying out a multi-period difference-in-difference approach on a confidential database of securities holdings of the European Central Bank, and we provide evidence of several effects related to the Paris Agreement. In aggregate, investors reduced their exposure to carbon-intensive assets in response to the agreement, and the trend reverted after the US withdrawal announcement. However, the reaction varies across categories and geographies of the securities holders, their ownership size, and the emissions of owned firms. In particular, transition risk has been taken up by less regulated financial institutions and the BRIC countries.
Our results highlight that the redirection of global financial flows towards climate action requires clear and unanimous signals from the global community of policy makers.

Keywords: sustainable finance, climate finance, transition risk, Paris Agreement, securities holdings

JEL Classification: G18, G20, G28

Suggested Citation

Lucia, Alessi and Battiston, Stefano and Kvedaras, Virmantas, Over With Carbon? Investors’ Reaction to the Paris Agreement and the US Withdrawal (August 31, 2022). Available at SSRN: https://ssrn.com/abstract=4205537 or http://dx.doi.org/10.2139/ssrn.4205537

Alessi Lucia (Contact Author)

Joint Research Center of the European Commission ( email )

Via E. Fermi 2749
Ispra (VA), I-21027
Italy

Università degli Studi di Milano-Bicocca - Center for European Studies (CefES) ( email )

U6 Building
Viale Piero e Alberto Pirelli, 22
Milano, 20126
Italy

Stefano Battiston

University of Zurich - Department Finance ( email )

Plattenstrasse 32
Zürich, 8032
Switzerland

Ca Foscari University of Venice ( email )

Cannaregio 873
Venice, 30121
Italy

Virmantas Kvedaras

Joint Research Centre, European Commission

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
200
Abstract Views
760
Rank
282,943
PlumX Metrics