Gianfranco Gianfrate (EDHEC Business School)

“Institutional investors and corporate carbon footprint”

Abstract: Beyond supporting new investments in clean energy, institutional investors are affecting the transition towards a low carbon economy by exercising their prerogatives as owners of global companies. Investors concerned with climate change exercise pressure of investee companies pushing for a reduction of carbon footprint. Using the survey administered by the UN Principles for Responsible Investments to global investors with assets under management of about 71 trillion USD, we find that investors accounting for about 26% of the total are actively managing their holdings’ exposure to climate change risks by using tools such as carbon footprinting, scenario testing, and enhanced disclosure on emission risks. We study to what extent responsible investors affect corporate carbon emissions focusing on the aftermath of COP21. We use a panel of 7373 firms from 68 countries for the period of 2013 to 2018 to examine institutional shareholders’ impact on carbon emissions and carbon-intensity. Results show that institutional investment is associated with a reduction of carbon footprint, with the effect becoming stronger following the Paris Agreement. These results suggest that responsible institutional investors can complement – and in certain jurisdictions substitute – national and international climate policies.