Climate Salience and the Demand for Green Stocks by Mutual Funds

Abstract

This paper explores how salient climate events impact the investment decisions of professional asset managers around the world. We find that following an increase in climate salience, fund managers increase their demand for green stocks. The changes in demand are consistent with an update of managers' perceptions about climate change and lead to the subsequent outperformance of the stocks they buy relative to the stocks they sell. We also show that part of the demand changes associated with climate salience can be attributed to investor allocations towards green funds. Our findings suggest that professional asset managers play an important role in translating changes in environmental concerns into asset prices.

Keywords: Mutual Funds, Climate Salience, Climate Change, Stock Performance

JEL Classification: G23, G12, G15