Are Institutional Investors Taking Stock of Climate Change?
CUHK research shows investors are avoiding high-emission stocks due to growing environmental awareness and such actions have led public firms to reduce their carbon footprints
[Sponsored Article]
Climate change, including global warming and an increased risk of extreme weather events, from heatwaves to storms and floods, is widely considered one of the greatest existential threats facing humankind. Over the last decade and a half, perhaps recognising the influence exerted by financial markets in shaping business behaviours, environmentalists have accelerated their efforts in advocating responsible investment decisions among market participants. For example, a campaign called Fossil Free: Divestment that aims at stopping investment in fossil fuel companies has attracted the attention of high profile organisations such as the philanthropic foundation Rockefeller Brothers Fund.
But how successful have environmental campaigners been in affecting behavioural change among financial market participants? Are institutional investors staying away from carbon intensive stocks as a result? A group of researchers at The Chinese University of Hong Kong (CUHK) Business School think they have the answers.
The researchers – Darwin Choi, Zhengyu Gao and Wenxi Jiang, Associate Professors at CUHK Business School’s Department of Finance – found that investors have significantly reduced their investments in carbon-intensive stocks since around the time the financial sector began to become more aware of environmental issues around 2015 and this wave of divestment has even led to increasing pressure on publicly-listed firms into taking a greener approach in their business operations and reducing their carbon footprints.
The new research results also come amid the recent publication of a comprehensive UN report that sounded a dire warning on climate change, noting that greenhouse gas emissions have already passed a point of no return that will prevent temperatures from rising over at least the next two decades.
The trio of CUHK researchers have long been studying the influence of global climate change on financial markets. An earlier paper titled “Attention to Global Warming” argued that retail investors pay more attention to climate change and sell down high-emission stocks after experiencing extreme weather conditions personally. Following on from this earlier research, they turned their attention to how climate change has impacted the heavyweight players on the investment sector – its institutional investors – in two new studies.