Climate-finance

It is widely believed that climate change can affect the financial performance of firms. In this chapter, we conceptualise the effects of climate change on the financial performance of firms. We explain that these effects have a twofold justification. First, climate change has been induced in the modern business as a form of pollution prevention. Therefore, firms that decrease their emissions can avoid environmental regulations and attract shareholders. Second, behavioural finance literature has shown that investors prefer environmental firms because they extract utility by holding these stocks. We empirically test the former channel. Results indicate that decreasing Greenhouse gases can indeed improve firms’ performance. Although, results are robust across three different regions; North America, Europe and Asian-Pacific, firms in the EU enjoy the highest benefits by engaging in emissions reductions.