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Do Financial Markets Respond to Green Opportunities?

Author

Listed:
  • Tobias Kruse
  • Myra Mohnen
  • Misato Sato

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

  • Tobias Kruse & Myra Mohnen & Misato Sato, 2024. "Do Financial Markets Respond to Green Opportunities?," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 11(3), pages 549-576.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/727370
    DOI: 10.1086/727370
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    Citations

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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. Cao, June & Huang, Zijie & Kristanto, Ari Budi, 2025. "From bytes to blooms: Tech-driven transformation and green revenues," Energy Economics, Elsevier, vol. 144(C).
    3. Cao, June & Huang, Zijie & Liew, Millie, 2025. "The environmental-financial nexus: Centralized environmental monitoring, eco-consciousness, and green revenues," Journal of Economic Behavior & Organization, Elsevier, vol. 231(C).
    4. Fatih Kansoy & Dominykas Stasiulaitis, 2025. "Green Shields: The Role of ESG in Uncertain Times," Economics Series Working Papers 1082, University of Oxford, Department of Economics.
    5. Fatih Kansoy & Dominykas Stasiulaitis, 2025. "Green Shields: The Role of ESG in Uncertain Time," Papers 2506.02143, arXiv.org.
    6. Bassen, Alexander & Kordsachia, Othar & Lopatta, Kerstin & Tan, Weiqiang, 2025. "Revenue alignment with the EU taxonomy regulation in developed markets," Journal of Banking & Finance, Elsevier, vol. 170(C).
    7. Gupta, Shreekant & Goldar, Bishwanath & Dang, Shubham & Baris, Omer F., 2025. "Environmental backsliders, repeat offenders and capital markets: Evidence from India," Economics Letters, Elsevier, vol. 256(C).
    8. Wang, Wen & Pan, Qi & Xie, Xiaoming, 2025. "Lost green leaders: Is China's green financial regulation efficient?," International Journal of Industrial Organization, Elsevier, vol. 103(PB).

    More about this item

    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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