Carbon Home Bias

Author: Marcin Kacperczyk (Imperial College London and CEPR)

Abstract: We analyze how global investors adapt their portfolio decisions to reduce the carbon footprint of their portfolios. We find widespread underweighting of companies with higher carbon emissions by institutional investors around the world. The underweighting is largely driven by underinvestment in foreign companies with high carbon emissions both at the intensive (tilting) and extensive (exclusion) margins. In contrast, similar domestic firms are overweighted but by a smaller margin. Underinvestment in foreign companies with high emissions is larger in the post-2015 period. These results reveal a preference (or carbon home bias) for local companies that have high carbon emissions.

Host: Christoph Kaserer