DP13206 Investor Rewards to Climate Responsibility: Evidence from the 2016 Climate Policy Shock

Author(s): Stefano Ramelli, Alexander F Wagner, Richard Zeckhauser, Alexandre Ziegler
Publication Date: September 2018
Date Revised: September 2019
Keyword(s): Climate finance, Climate Policy, CSR, election surprise, ESG, event study, institutional investors, Stock returns
JEL(s): G14, G38
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13206

Donald Trump's election and his nomination of Scott Pruitt, a climate skeptic, to lead the Environmental Protection Agency drastically downshifted expectations on US climate-change policy. We study firms' stock-price reactions and institutional investors' portfolio adjustments after these events. As expected, carbon-intensive firms benefited. Should not companies with responsible strategies on climate change have lost value, since they were paying for actions that were now less urgent? In fact, investors actually rewarded such firms. The premium the firms received resulted, at least in part, from the move into climate-responsible stocks by long-horizon investors presumably expecting a post-Trump rebound to green policy.