This paper 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.

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1 May 2024

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Journal of the Association of Environmental and Resource Economists 11(3) 2024

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DOI: 10.1086/727370

https://www.journals.uchicago.edu/doi/10.1086/727370

This Journal article is published under the centre's Growth programme.