With rising public attention to climate change, the proliferation of green mutual funds reflects expectations that they will contribute to a sustainable economic transition. This paper investigates the effects of climate news on mutual fund flows and portfolio allocation decisions. Using detailed flow- and holding-level data, we observe that heightened climate news results in significantly larger capital inflows into green funds than into their non-green counterparts. Furthermore, we show that, in response to climate news, green funds decrease their exposure to high-polluting firms relative to low-polluting firms more than non-green funds do. These results suggest that increasing public attention boosts capital reallocation towards green funds and that, in turn, potentially fosters investment relocation towards more environmentally friendly companies.

Using granular data on global investment funds in difference-in-differences regressions around the announcement of the U.S. Inflation Reduction Act (IRA), we identify a novel international spillover channel of green industrial policies. Sustainable global investment funds received more inflows with the act announcement, in turn increasing their cross-border portfolio investments worldwide. Recipient economies better prepared to address climate change benefited most from sustainable global funds’ additional investments. Our results are stronger for funds with a larger portfolio share invested in the United States and in IRA-targeted industries. Yet, we see strong international spillovers even for non-U.S.-domiciled sustainable funds investing entirely outside the United States. Thus, global investment funds have become an important conduit for the international spillover of climate policies.

What are the effects of supply-side climate policies in the oil market? We use global company-level data to estimate the impact of 84 reforms of production taxes between 2000 and 2019 on oil production, exploration, and discoveries. We find that higher taxes primarily reduce companies’ exploration expenditures and oil discoveries, and also reduce short-term production of unconventional oil. We then quantify the implications for the oil market using a short- and medium-term dynamic model extending until the end of the century. Imposing a global climate royalty surcharge of 20 percentage points on oil producers reduces average annual emissions from oil by 5–7% in the first 5 years, and 9–20% in the medium term. If only OECD countries adopt this policy, 47–73% of the total emission reductions would be offset by increased production in non-OECD countries in the medium term.

Addressing climate change requires individual behavior change and voter support for pro-climate policies, yet surprisingly little is known about how to achieve these outcomes. In this paper, we estimate causal effects of additional education on pro-climate outcomes using new compulsory schooling law data across 20 European countries. We analyze effects on pro-climate beliefs and behaviors, as well as novel data on policy preferences and voting for green parties. Results show that a year of education substantially increases pro-climate beliefs, behaviors, and policy preferences.

We provide novel evidence on the role of firms’ banking relationships with government banks (GOBs) during a climate-related shock when relief funds are unavailable. Using variation in the locations of rainfall shocks and firms’ banking relationships, we find that firms maintaining exclusive banking relationships with GOBs (GOB firms) secure more debt relative to other firms during rainfall shocks. We do not find such effects for firms that maintain exclusive relationships with private banks, foreign banks, or maintain multiple banking relationships. We also find that GOB relationships are particularly beneficial for firms that are more vulnerable to rainfall shocks, have long-term relationships with GOBs, and are, at the same time, healthier compared to other firms. With regard to real effects, GOB firms invest more and remain profitable than other firms during rainfall shocks. Overall, our results highlight the benefits of GOB relationships for firms during climate shocks.

Research finds that climate disasters have had minimal effects on banks’ performance to date, and it has devoted limited attention to how banks shape societal exposure to the disasters. This study addresses this puzzle and gap. Examining the share price reactions of banks affected by billion-dollar disasters from 1994–2024, we find that on average these banks lost market value around the disasters exceeding 10 percent of the estimated damages, with this percentage more than doubling during the sample period. We next show that banks’ county-level mortgage lending is positively associated with property exposures to disasters and FEMA appropriations when disasters occur. Finally, we show that banks open new branches in counties that experience growth in socially advantaged population, especially counties with high climate risks. Given accelerating climate change, property-casualty insurers backing away from climate-risky counties, and FEMA’s uncertain status, our evidence highlights growing climate-related costs for banks and society.

U sing lenders who become members of the Task Force on Climate-Related Financial Disclosures (TCFD) as an exogenous shock, we examine whether and how lenders’ commitment to transparent climate-related disclosures affects borrowers’ environmental performance. We find that borrowers of TCFD-member lenders, relative to control firms, significantly improve their environmental performance after the TCFD launch. Lenders’ disclosure commitments influence borrowers through credit rationing and monitoring. Specifically, polluting borrowers face higher borrowing costs, reduced access to credit, and greater incorporation of environmental action covenants in loan agreements. Additionally, polluting borrowers of TCFD-member lenders experience heightened financial constraints. Finally, borrowers of TCFD-member lenders are more likely to adopt the TCFD framework for climate-related disclosure after the TCFD establishment. Together, these findings illuminate the role of lenders in driving corporate environmental performance improvement through their commitment to transparent climate-related disclosures.

Despite the growing integration of artificial intelligence (AI) into business models, studies of its impact on corporate climate change exposure remain scarce. Through an examination of AI-related innovations among US-listed firms from 2001 to 2019, we present compelling evidence that AI innovation effectively mitigates firms’ climate change exposure. In particular, it reduces firms’ exposure to regulatory and physical risks related to climate change through improved carbon management efficiency, with computer vision and control and planning being the most effective types in this context. Our findings are particularly pronounced for mature firms and those facing greater regulatory intervention. The results withstand rigorous tests that address endogeneity concerns. Our study provides strong support for firms to adopt AI innovations to achieve carbon neutrality, contributing to the ongoing discourse regarding AI trade-offs. Our findings also offer valuable insights into the development of climate risk mitigation strategies.

We construct a dynamic integrated assessment model of climate and the economy with very high geographic resolution. Migration is free within, but not allowed across, countries. The model parameterization uses a wealth of data, including the distribution of output, population, energy sources and use, and estimates of the local damages from climate change. It implies very large geographic dispersion in damages from warming. We conduct three kinds of policy experiments. In one, we note that a modest, uniform carbon tax limits global warming and damages around the world substantially. In a second experiment, we let the poorest countries not tax carbon, while the rest compensate by setting higher taxes; the efficiency losses are large. In a final experiment, we find that fast green technology growth alone is a poor substitute for carbon taxes, whether globally available or not.