Climate change and shareholder value: Evidence fro | Newswise - Newswise
Climate change and shareholder value: Evidence fro | Newswise
Research Alert
Abstract
Newswise — Exploiting a novel measure of firm-specific exposure to climate change generated from cutting-edge machine learning algorithms, we explore the effect of climate change vulnerability on shareholder wealth using Donald Trump’s unexpected election victory in 2016. Our results demonstrate that companies more vulnerable to climate change experienced significantly more adverse market reactions when Trump was elected. Considering Trump’s public skepticism on climate change, investors expected him to oppose actions that seriously addressed climate change, resulting in more negative consequences for firms with higher climate change exposure. Our results provide compelling evidence that the positions taken by politicians on climate change directly impact firm value and shareholder wealth. Our findings suggest that elections have significant ramifications on financial and capital markets and that climate change is a crucially important issue for shareholders and investors.
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Related Knowledge Center: Climate economics
Climate change is now a driver of the world’s economy. The impact is profound:
- Catastrophic weather events — hurricanes, floods, droughts, high temperatures — are more frequent and more extreme. The cost can be measured in both the initial damage caused and the longer-term impact on the economy.
- Vulnerable communities are increasing climate-related investments, hardening infrastructure and taking other protective measures.
- Investment in carbon capture and storage technologies is increasingly rapidly.
- Governments are making investments and crafting regulations to reduce emissions of carbon dioxide and other greenhouse gases.
On top of all of this is the cost of uncertainty. As the Fourth National Climate Assessment, released in 2018 by the U.S. Global Change Research Program, says, “The assumption that current and future climate conditions will resemble the recent past is no longer valid.”