Climate Postures

34 Pages Posted: 27 Jan 2024 Last revised: 5 Feb 2024

See all articles by Thomas Cauthorn

Thomas Cauthorn

University of Kassel

Samuel Drempetic

Steyler Ethik Bank

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin; European Commission - DG FISMA

Christian Klein

University of Kassel

Adair Morse

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Date Written: December 20, 2023

Abstract

Climate-induced industrial transformations should cause sectors to undergo competitive market sorting. Drawing inspiration from Roy (1951) – where the best fishers focus on fishing, and the best hunters focus on hunting – we define climate postures as the focus of firm climate efforts, where those positioning themselves firmly within the status quo economy focus on costs, and those seeking opportunities focus on transition. We identify the existence of climate postures in the industrial base sectors by inferring signals from managers’ manual editing of ESG data and the accompanying market reaction. We find priced evidence for both optimal status quo and transition opportunity firms in both energy and industrials/basic materials sectors. Transition opportunity sorting in the US and Canada yields a 3% or higher excess two-week return for energy firms in non-stringent environmental policy countries and a 2.9% return for industrials firms. Sorting into status quo climate postures focusing on cost efficiency for industrials and energy firms also yield positive returns in the US and Canada, suggesting that active Roy-like sorting in these countries. On the negative side, our design also identifies across-sector market penalties in signals of climate costs.

Keywords: Climate Finance, Transition Economy, ESG Score Management, Roy Model for Climate Sorting, Signaling Green

JEL Classification: G30, G32, M14, Q51, Q54, Q55

Suggested Citation

Cauthorn, Thomas and Drempetic, Samuel and Hoepner, Andreas G. F. and Klein, Christian and Morse, Adair, Climate Postures (December 20, 2023). Available at SSRN: https://ssrn.com/abstract=4684234 or http://dx.doi.org/10.2139/ssrn.4684234

Thomas Cauthorn

University of Kassel ( email )

Fachbereich 05
Nora-Platiel-Straße 1
34109 Kassel, Hessen 34127
Germany

Samuel Drempetic

Steyler Ethik Bank ( email )

Arnold-Janssen-Str. 22
Sankt Augustin, DE 53757
Germany

HOME PAGE: http://www.steyler-bank.de

Andreas G. F. Hoepner (Contact Author)

Smurfit Graduate Business School, University College Dublin ( email )

Blackrock, Co. Dublin
Ireland

European Commission - DG FISMA ( email )

2 Rue de Spa
Brussels, 1000
Belgium

Christian Klein

University of Kassel ( email )

Nora Platiel Str.4
Kassel, Hessen 34109
Germany

Adair Morse

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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