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Do financial markets respond to green opportunities?

Author

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  • Kruse, Tobias
  • Mohnen, Myra
  • Sato, Misato

Abstract

This study investigates whether financial markets respond to firms’ climate actions. We exploit the signing of the Paris Agreement, which required governments to commit to ambitious climate action, as a quasi-natural experiment. Using a proprietary green revenue database, we find that firms deriving a significant fraction of their revenues from green goods and services experience on average a 10% increase in cumulative abnormal returns following the agreement. The empirical evidence indicates that financial markets are responding to opportunities associated with new green markets, and strengthening climate policies can reallocate capital to support green private sector investment.

Suggested Citation

  • Kruse, Tobias & Mohnen, Myra & Sato, Misato, 2024. "Do financial markets respond to green opportunities?," LSE Research Online Documents on Economics 121969, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:121969
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    References listed on IDEAS

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    1. James W. Kolari & Seppo Pynnönen, 2010. "Event Study Testing with Cross-sectional Correlation of Abnormal Returns," The Review of Financial Studies, Society for Financial Studies, vol. 23(11), pages 3996-4025, November.
    2. Corrado, Charles J., 1989. "A nonparametric test for abnormal security-price performance in event studies," Journal of Financial Economics, Elsevier, vol. 23(2), pages 385-395, August.
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    Cited by:

    1. Misato Sato & Glen Gostlow & Catherine Higham & Joana Setzer & Frank Venmans, 2024. "Impacts of climate litigation on firm value," Nature Sustainability, Nature, vol. 7(11), pages 1461-1468, November.
    2. Misato Sato & Glen Gostlow & Catherine Higham & Joana Setzer & Frank Venmans, 2024. "Impacts of climate litigation on firm value," Nature Sustainability, Nature, vol. 7(11), pages 1461-1468, November.

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    More about this item

    Keywords

    green revenues; Paris Agreement; event study; corporate financial performance; green finance; H2020-MSCA-RISE project GEMCLIME-2020 (GA number 681228; Future Research Leaders (ES/N016971/1); Centre for Climate Change Economics and Policy (CCCEP) (ES/R009708/1); and PRINZ (ES/W010356/1;
    All these keywords.

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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