Climate Capitalists
In theory, a cost of capital channel can incentivize green investments like a carbon tax. This channel requires that firms perceive the cost of green capital as lower than that of brown capital. Using hand-collected data, we show that green firms have indeed perceived their cost of capital to be 1 percentage point lower since 2016, when climate concerns by financial investors and governments surged. Moreover, some energy firms have used a lower cost of capital for their green divisions. The findings suggest that the cost of capital can incentivize capital reallocation toward greener investments across firms and within firms.
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Copy CitationNiels Joachim Gormsen, Kilian Huber, and Sangmin Simon Oh, "Climate Capitalists," NBER Working Paper 32933 (2024), https://doi.org/10.3386/w32933.
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