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How Do Climate Policies Affect Holdings of Green and Brown Firms' Securities?

Author

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  • Dominika Ehrenbergerova
  • Simona Malovana
  • Caterina Mendicino

Abstract

We study how climate policies and significant events affect holdings of securities issued by low-carbon (green) and high-carbon (brown) firms. Using security-level data, we show that financial sector increased its holdings of green firms' securities and reduced its holdings of brown firms' securities following the Paris Climate Agreement and the 2019 UN Climate Action Summit. The COVID-19 pandemic had a similar effect, highlighting the role of the carbon risk premium. Conversely, the private non-financial sector increased its holdings of brown firms' securities, indicating a shift of transition risks toward this sector. Lastly, home bias and the environmental performance of holder and issuer countries significantly influence these effects.

Suggested Citation

  • Dominika Ehrenbergerova & Simona Malovana & Caterina Mendicino, 2023. "How Do Climate Policies Affect Holdings of Green and Brown Firms' Securities?," Working Papers 2023/11, Czech National Bank, Research and Statistics Department.
    • Handle: RePEc:cnb:wpaper:2023/11
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Climate policies; COVID-19 pandemic; difference-in-differences; security-level data;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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