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Climate Change Concerns and the Performance of Green vs. Brown Stocks

Author

Listed:
  • David Ardia

    (Groupe d’Études et de Recherche en Analyse des Décisions (GERAD) & Department of Decision Sciences, École des Hautes Études Commerciales (HEC) Montréal, Montréal, Québec H3T 2A7, Canada)

  • Keven Bluteau

    (Department of Finance, Université de Sherbrooke, Sherbrooke, Québec J1K 2R1, Canada)

  • Kris Boudt

    (Solvay Business School, Vrije Universiteit Brussel, 1050 Brussels, Belgium; Department of Economics, Ghent University, 9000 Ghent, Belgium; School of Business and Economics, Vrije Universiteit Amsterdam, 1081 Amsterdam, The Netherlands)

  • Koen Inghelbrecht

    (Department of Economics, Ghent University, 9000 Ghent, Belgium)

Abstract

We empirically test the prediction of Pástor et al. (2021) that green firms outperform brown firms when concerns about climate change increase unexpectedly, using data for S&P 500 companies from January 2010 to June 2018. To capture unexpected increases in climate change concerns, we construct a daily Media Climate Change Concerns index using news about climate change published by major U.S. newspapers and newswires. We find that on days with an unexpected increase in climate change concerns, the green firms’ stock prices tend to increase, whereas brown firms’ prices decrease. Furthermore, using topic modeling, we conclude that this effect holds for concerns about both transition and physical climate change risk. Finally, we decompose returns into cash flow and discount rate news components and find that an unexpected increase in climate change concerns is associated with an increase (decrease) in the discount rate of brown (green) firms.

Suggested Citation

  • David Ardia & Keven Bluteau & Kris Boudt & Koen Inghelbrecht, 2023. "Climate Change Concerns and the Performance of Green vs. Brown Stocks," Management Science, INFORMS, vol. 69(12), pages 7607-7632, December.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:12:p:7607-7632
    DOI: 10.1287/mnsc.2022.4636
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