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Climate change concerns and the performance of green versus brown stocks

Author

Listed:
  • David Ardia

    (Department of Decision Sciences, HEC Montréal)

  • Keven Bluteau

    (Department of Decision Sciences, HEC Montréal; Department of Economics, Ghent University)

  • Kris Boudt

    (Solvay Business School, Vrije Universiteit Brussel; Department of Economics, Ghent University; School of Business and Economics, Vrije Universiteit Amsterdam)

  • Koen Inghelbrecht

    (Department of Economics, Ghent University)

Abstract

We empirically test the prediction of Pastor, Stambaugh, and Taylor 2020 that green firms can outperform brown firms when climate change concerns strengthen unexpectedly for S&P 500 companies over the period January 2010 - June 2018. To capture unexpected increases in climate change concerns, we construct a Media Climate Change Concern index using climate change-related news published by major U.S. newspapers. We find a negative relationship between the firms' exposure to the Media Climate Change Concerns index and the level of the firm's greenhouse gas emission per unit of revenue. This result implies that when concerns about climate change rise unexpectedly, green firms' stock price increases, while brown firms' stock price decreases. Further, using topic modeling, we analyze which type of climate change news drives this relationship. We identify five themes that have an effect on green vs. brown stock returns. Some of those themes can be related to change in investors' expectations about the future cash-ow of green vs. brown firms, while others cannot. This result implies that the relationship between concern and green vs. brown stock returns arises from both investors updating their expectations about the future cash-ows of green and brown firms and changes in investors' sustainability taste.

Suggested Citation

  • David Ardia & Keven Bluteau & Kris Boudt & Koen Inghelbrecht, 2020. "Climate change concerns and the performance of green versus brown stocks," Working Paper Research 395, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:202010-395
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    References listed on IDEAS

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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