The question of whether and how the COVID-19 crisis will affect the future of climate actions is among the key questions for policymakers, business leaders and investors. Before COVID-19, climate change and the great financial risks it carries were seen as a major threat to the economy (Carney 2015), and increasingly integrated by investors and businesses (Krueger et al. 2020 ). However, in a matter of weeks, the focus changed dramatically: the COVID-19 pandemic and its unprecedented financial consequences quickly became the most important concern for investors and businesses (Baldwin and Weder di Mauro 2020a, 2020b). In the midst of the crisis, several global industries have even called for a suspension of environmental protections to allow companies to rebound faster.

It is therefore valid to ask whether the COVID-19 epidemic has diverted the attention of investors from environmental issues, because they were suddenly perceived as less urgent? Or if, on the contrary, the COVID-19 epidemic really reinforces the value that investors place on responsible initiatives on environmental and climate issues? In a recent article, we shed light on these questions by studying the cross-sectional analysis of the reactions of stock market prices to the COVID-19 shock (Garel and Petit-Romec 2020).

Specifically, using data from Thomson Reuters’ ESG Asset4 database for a sample of large U.S. listed companies, we examine whether a company’s environmental score affects its stock market response to the COVID-19 shock. The environmental score measures a company’s commitment and effectiveness in adopting responsible initiatives and strategies on environmental issues, including the reduction of environmental emissions (for example, greenhouse gases, carbon-depleting substances, etc.). ozone layer) and the efficient use of natural resources in the production process. In line with other studies (e.g. Ramelli and Wagner 2020, Fahlenbrach et al. 2020) and the graphical examination of the time series of major US indices, we define the COVID-19 shock as the period between February 20 and March 20, 2020.

The figure below shows the industry-adjusted average stock returns for companies sorted by quartile of environmental ratings. It provides preliminary evidence that companies with greater environmental responsibility register better stock returns during the COVID-19 shock. It also suggests that the association between environmental responsibility and stock market returns is determined by the companies with the best environmental performance.

Figure 1 Adjusted average stock market returns by sector

In a more formal analysis where we control the standard determinants of the cross-section of stock returns, we find that companies with greater environmental responsibility have better stock returns during the COVID-19 shock. The effect is economically significant: An increase of one standard deviation in environmental responsibility is associated with stock returns that are 1.4 percentage points higher during the COVID-19 period. In relative terms, the economic effect of environmental responsibility is slightly smaller but comparable in magnitude to liquidity and long-term debt, which are two key determinants of the cross-section of returns during the COVID-19 shock (Fahlenbrach et al. . 2020, Ramelli and Wagner 2020). This result is specific to the COVID-19 shock because we do not observe any statistical association between environmental responsibility and stock market returns in the pre-COVID period. These results suggest that the COVID-19 shock has led investors to review their valuation of responsible initiatives on environmental issues.

Further analysis shows that the association between environmental responsibility and inventory returns during the COVID-19 shock is primarily driven by initiatives to address climate change (for example, reducing environmental emissions and fuel consumption). ‘energy). We also observe that the positive association between environmental responsibility and stock returns during the COVID-19 shock is significantly more pronounced for companies with more long-term investor ownership. This result is consistent with previous evidence indicating that investors with a long-term orientation are more concerned with environmental responsibility (e.g. Gibson and Krueger 2018, Ramelli et al. 2018).

Overall, our results indicate that companies with greater environmental responsibility experienced better stock returns during the COVID-19 shock. They are incompatible with the idea that the unprecedented and new risk posed by COVID-19 has distracted investors from environmental and climate issues. On the contrary, investors, especially those with a long-term orientation, seem to have rewarded responsible initiatives on environmental issues such as reducing environmental emissions. Our results add to recent research showing that climate risk is an important factor affecting tail risk in stock returns and stock prices across the cross-section (Bolton and Kacperczyk 2019, Ilhan et al. 2019). They also complement recent studies showing that companies with greater corporate social responsibility performed better during the 2007-08 financial crisis and the COVID-19 crisis (e.g. Lins et al. 2017, Albuquerque et al. 2019, 2020, Ding et al. 2020). Previous studies highlight that customer loyalty and the trust between a company and its stakeholders, built through investments in corporate social responsibility (CSR), pay off in times of crisis. During the COVID-19 crisis, we are finding that only environmental responsibility and not social responsibility is associated with higher stock returns, which is consistent with investor awareness of environmental and climate issues being much more pronounced today. than it was in 2008. In this regard, the COP 21 Paris Agreement in 2015 may have played an important role in raising awareness of climate issues.

Although more research is needed to examine the long-term and real consequences of the COVID-19 shock on environmental and climate issues (e.g. increased shareholder activism on environmental issues, increased support for environmental and climate resolutions , adoption of responsible initiatives on environmental and climate issues, climate issues), our results suggest that the COVID-19 crisis could mark a turning point in the relationship between environmental responsibility and financial performance as well as in the value that investors attach to climate initiatives. Anecdotal evidence indicates that the first half of 2020 has already seen an increase in climate stocks, with investors pressuring companies to tackle global warming and climate change resolutions receiving greater support than in 2019.

Our study has implications for both managers and investors. For managers, they imply that companies with responsible initiatives on environmental and climate issues should do better in the future. As a result, leaders can no longer hide behind market forces or the misconception that pursuing a climate-friendly agenda goes against shareholders’ wishes and harms shareholder value. For investors, they imply that environmental issues and in particular carbon emissions are likely to become an increasingly important factor in the composition of portfolios and the pricing of stocks in the post-COVID world.

The references

Albuquerque, R, Y Koskinen and C Zhang (2019), “Corporate Social Responsibility and Business Risk: Theory and Empirical Evidence“, Management science, 65 (10): 4451-4469.

Albuquerque, RA, Y Koskinen, S Yang and C Zhang (2020), “Love in the Time of COVID-19: The Resilience of Environmental and Social Stocks“, Covid economy: articles verified and in real time 11, CEPR.

Baldwin, R and B Weder di Mauro (2020a), The economy in the time of COVID-19, VoxEU eBook, CEPR Press.

Baldwin, R and B Weder di Mauro (2020b), Mitigating the COVID Economic Crisis: Acting Fast and Doing the Right Thing, VoxEU eBook, CEPR Press.

Bolton, P and M Kacperczyk (2020), “Do investors care about carbon risk?”, NBER working paper n ° w26968.

Carney, M (2015), “Breaking the Horizon Tragedy – Climate Change and Financial Stability ”, speech delivered at Lloyd’s, London, 29, 220-230.

Ding, W, R Levine, C Lin and W Xie (2020), “Business immunity to the COVID-19 pandemic”, NBER working document n ° 27055.

Fahlenbrach, R, K Rageth and RM Stulz (2020), “What is the value of financial flexibility when income stops? Testimonials from the COVID-19 crisis”, NBER working document n ° 27106.

Garel, A and A Petit-Romec (2020), “Investors Reward Environmental Responsibility: Evidence of COVID-19 Crisis“, Covid economy: articles verified and in real time 33. CEPR.

Gibson, R and P Krueger (2018), “The sustainability footprint of institutional investors”, Swiss Finance Institute Research Paper 17-05.

Ilhan, E, Z Sautner and G Vilkov (2019), “Carbon tail risk», Available at SSRN 3204420.

Krueger, P, Z Sautner and LT Starks (2020), “The importance of climate risks for institutional investors“, Review of financial studies, 33 (3): 1067-1111.

Lins, KV, H Servaes and A Tamayo (2017), “Social capital, trust and business performance: the value of corporate social responsibility during the financial crisis“, The Finance Journal 72 (4): 1785-1824.

Ramelli, F and A Wagner (2020), “What the Stock Market Tells Us About the Consequences of COVID-19,” VoxEU.org, March 12.

Ramelli S, AF Wagner, R Zeckhauser and A Ziegler (2018), “Stock price rewards to climate saints and sinners: Evidence from Trump’s Election,” VoxEU.org, October 29.


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