Climate Change Concerns and the Performance of Green vs. Brown Stocks

We empirically test the prediction of Pástor et al. (2021) that green firms outperform brown firms when concerns about climate change increase unexpectedly, using data for S&P 500 companies from January 2010 to June 2018. To capture unexpected increases in climate change concerns, we construct a daily Media Climate Change Concerns index using news about climate change published by major U.S. newspapers and newswires. We find that on days with an unexpected increase in climate change concerns, the green firms’ stock prices tend to increase, whereas brown firms’ prices decrease. Furthermore, using topic modeling, we conclude that this effect holds for concerns about both transition and physical climate change risk. Finally, we decompose returns into cash flow and discount rate news components and find that an unexpected increase in climate change concerns is associated with an increase (decrease) in the discount rate of brown (green) firms. This paper was accepted by George Serafeim, Special Section of Management Science on Business and Climate Change. Funding: This work was supported by the National Bank of Belgium, Research Foundation Flanders (FWO), Institut de Valorisation des Données (IVADO), the Natural Sciences and Engineering Research Council of Canada [Grant RGPIN-2022-03767], and Schweizerischer Nationalfonds zur Förderung der Wissenschaftlichen Forschung [Grants 179281, 191730]. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2022.4636 .