Working Paper: CEPR ID: DP13206
Authors: Stefano Ramelli; Alexander F. Wagner; Richard Zeckhauser; Alexandre Ziegler
Abstract: Donald Trump's 2016 election and his nomination of climate skeptic Scott Pruitt to head the Environmental Protection Agency drastically downshifted expectations on U.S. policy toward climate change. Joseph Biden's 2020 election shifted them dramatically upward. We study firms' stock-price movements in reaction. As expected, the 2016 election boosted carbon-intensive firms. Surprisingly, firms with climate-responsible strategies also gained, especially those firms held by long-run investors. Such investors appear to have bet on a "boomerang" in climate policy. Harbingers of a boomerang already appeared during Trump's term. The 2020 election marked its arrival.
Keywords: climate finance; climate policy; CSR; election surprise; ESG; event study; institutional investors; stock returns; policy boomerang
JEL Codes: G14; G38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 2016 election of Donald Trump (K16) | downshift in expectations regarding US climate policy (F64) |
| downshift in expectations regarding US climate policy (F64) | positive stock price reaction for carbon-intensive firms (Q52) |
| firms demonstrating climate responsibility (M14) | positive stock price movements (G12) |
| long-term investors (G23) | positive stock price movements for climate responsible firms (G38) |
| 2020 election (K16) | shift back towards climate-conscious policies (F64) |
| shift back towards climate-conscious policies (F64) | enhanced stock performance for firms with strong climate responsibility (G38) |