Climate Capitalists
70 Pages Posted: 4 Mar 2023 Last revised: 25 Apr 2025
Date Written: February 22, 2023
Abstract
In theory, a cost of capital channel can incentivize green investments like a carbon tax. This channel requires that firms perceive the cost of green capital as lower than that of brown capital. Using hand-collected data, we show that green firms have indeed perceived their cost of capital to be 1 percentage point lower since 2016, when climate concerns by financial investors and governments surged. Moreover, some energy firms have used a lower cost of capital for their green divisions. The findings suggest that the cost of capital can incentivize capital reallocation toward greener investments across firms and within firms.
Keywords: Cost of capital, sustainable investing, ESG, climate change, green transition, green investment
Suggested Citation: Suggested Citation
Gormsen, Niels Joachim and Huber, Kilian and Oh, Sangmin, Climate Capitalists (February 22, 2023). Available at SSRN: https://ssrn.com/abstract=4366445 or http://dx.doi.org/10.2139/ssrn.4366445
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