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Climate Impact Investing

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  • Tiziano De Angelis
  • Peter Tankov
  • Olivier David Zerbib

Abstract

This paper shows how green investing spurs companies to mitigate their carbon emissions by raising the cost of capital of the most carbon-intensive companies. Companies’ emissions decrease when the wealth share of green investors and their sensitivity to climate externalities increase. We show that the impact of green investors primarily governs companies’ long-run emissions. Companies are further incentivized to reduce their emissions when green investors anticipate tighter climate regulations and climate-related technological innovations. However, heightened uncertainty regarding future climate risks alleviates green investors’ pressure on the cost of capital of companies and pushes them to increase their emissions. Calibrated on United States data, our model suggests that, albeit effective, the impact of green investors remains limited given their current wealth share and practices.

Suggested Citation

  • Tiziano De Angelis & Peter Tankov & Olivier David Zerbib, 2022. "Climate Impact Investing," Carlo Alberto Notebooks 676 JEL Classification: G, Collegio Carlo Alberto.
  • Handle: RePEc:cca:wpaper:676
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    Cited by:

    1. Pramendra Singh Tank & Sanjay Kumar Jain & Balagopal Gopalakrishnan, 2023. "Do firms respond to commitments on climate change? Impact of COP21 on investment intensity," IIMA Working Papers WP 2023-08-02, Indian Institute of Management Ahmedabad, Research and Publication Department.
    2. Krahnen, Jan Pieter, 2023. "Welche Rolle spielt die Finanzwirtschaft im Angesicht des Klimawandels?," SAFE Policy Letters 101, Leibniz Institute for Financial Research SAFE.
    3. Kim, Daniel & Pouget, Sébastien, 2023. "Do carbon emissions affect the cost of capital? Primary versus secondary corporate bond markets," TSE Working Papers 23-1472, Toulouse School of Economics (TSE).
    4. Dan J. Kim & Indranil Bose & Arunabha Mukhopadhyay, 2023. "Special Issue on Bright Information and Communication Technologies in the 21st Century," Information Systems Frontiers, Springer, vol. 25(5), pages 1661-1665, October.
    5. Olivier David Zerbib, 2022. "A Sustainable Capital Asset Pricing Model (S-CAPM): Evidence from Environmental Integration and Sin Stock Exclusion [Asset pricing with liquidity risk]," Review of Finance, European Finance Association, vol. 26(6), pages 1345-1388.
    6. Pierre Lavigne & Peter Tankov, 2023. "Decarbonization of financial markets: a mean-field game approach," Papers 2301.09163, arXiv.org.
    7. Martijn Boermans, 2023. "Preferred habitat investors in the green bond market," Working Papers 773, DNB.

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    Climate finance; socially responsible investing; ESG; impact investing;
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