Climate Capitalists

70 Pages Posted: 4 Mar 2023 Last revised: 25 Apr 2025

See all articles by Niels Joachim Gormsen

Niels Joachim Gormsen

University of Chicago - Booth School of Business

Kilian Huber

University of Chicago - Booth School of Business

Sangmin Oh

Columbia University - Columbia Business School, Finance

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

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

Niels Joachim Gormsen (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Kilian Huber

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Sangmin Oh

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States

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