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Title: Climate change concerns and the performance of green versus brown stocks Authors:  David Ardia - HEC Montreal (Canada)
Kris Boudt - Vrije Universiteit Brussel (Belgium)
Keven Bluteau - HEC Montreal (Canada) [presenting]
Koen Inghelbrecht - Ghent University (Belgium)
Abstract: The aim is to empirically test the prediction that green firms can outperform brown firms when climate change concerns strengthen unexpectedly for S\&P 500 companies over the period of January 2010 - June 2018. To capture unexpected increases in climate change concerns, we construct a Media Climate Change Concern index using climate change-related news published by major U.S. newspapers. We find a negative relationship between the firms' exposure to the Media Climate Change Concerns index and the level of the firm's greenhouse gas emission per unit of revenue. This result implies that when concerns about climate change rise unexpectedly, green firms' stock price increases, while brown firms' stock price decreases. Further, using topic modeling, we analyze which type of climate change news drives this relationship. We identify five themes that affect green vs brown stock returns. Some of those themes can be related to change in investors' expectations about the future cash-flow of green vs brown firms, while others cannot. This result implies that the relationship between concern and green vs brown stock returns arises from both investors updating their expectations about the future cash-flows of green and brown firms and changes in investors' sustainability taste.