Climate Capitalists

36 Pages Posted: 4 Mar 2023

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

University of Chicago - Booth School of Business; University of Chicago - Department of Economics

Date Written: February 22, 2023

Abstract

Climate capitalists invest in green firms in order to lower these firms' cost of capital and thereby stimulate green investments. This "green investing" channel only works if green firms actually reduce their perceived cost of capital and discount rates in response to green investing. Using data from Gormsen and Huber (2022), we find that the average difference in the perceived cost of capital between the greenest and the brownest firms was close to zero before 2016 but has fallen to -2.6 percentage points in the years since 2016, concurrent with the rise of green investing. Similarly, the difference in discount rates was small before 2016 and has fallen to -5.8 percentage points since 2016. In a simple stylized model, the observed differences in discount rates are large enough to reduce firm-level emissions by 20 percent. We survey corporate managers to study how firms incorporate greenness into their discount rates. Overall, the results are consistent with an important role for climate capitalists in stimulating climate-friendly production.

Keywords: Cost of capital, discount rates, ESG investing, green investing, sustainable investing

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

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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