Shifts & Narratives #11 – Green sentiment: what impact on stock returns and firm’s behaviour?

November 19, 2021

As a large number of investors turn to green assets, this raises questions about investors’ impact on the economy, in particular through their influence on firms’ valuations and corporate behaviour. Understanding this effect is key for institutional investors, who not only care about the consequences of their investment but also struggle to understand how much of past performances have been driven by changing climate fundamentals and by changing environmental preferences of investors, i.e. “green sentiment”. Our recent Amundi Working Paper (Brière and Ramelli, WP N° 117, 2021) proposes a unique way to measure green sentiment and to quantify its effect. Over the period 2010-2020, changes in green sentiment anticipate a lasting stock out-performance by more environmentally responsible firms of approximately 50 basis points over six months (for a one-standard deviation higher green sentiment), as well as a 5% and 3% relative increase in firms’ capital investments and cash holdings.

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