Technological Greenness and Long-Run Performance

Abstract

Firms’ investments in green technology are crucial for investors’ alignment to the Net Zero target. However, it is still unclear whether these investments are rewarded by the market. Using a science-based technological measure of greenness, we find that adopting sustainable technologies leads to a long-run improvement in fundamentals that is only partially reflected in stock prices. Correspondingly, firms with greener technologies achieve superior returns over a multi-year period and are better positioned for the transition to a low-carbon economy. These effects are especially pronounced in financially developed countries, during uncertain times, and among firms with better climate-related disclosure.

Keywords: Technological greenness, Climate finance, Long-run returns, Operating performance, Disclosure

JEL Classification: G10, G12, G14, G15