Abstract
We examine the actions of financial institutions and firms regarding greenhouse gas emissions. We find that financial institutions around the world reduce their exposure to stocks of high-emission industries after 2015, especially for those located in high-climate-awareness countries, suggesting that institutions are concerned about climate risks in recent years. In the presence of divestment, public high-emission firms in the same countries tend to experience lower price valuation ratios, but they increase capital expenditure, research and development (R&D) expenses, and green innovation activities, and reduce emissions resulting from their operations. We do not obtain the same results using private firms. Our results support the notion that divestment campaigns by financial institutions exert pressure on public firms to adopt climate-friendly policies and decrease carbon footprints.
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