Extreme local temperatures in 2023 may serve as a wake-up call for people to realize climate change risks. Institutional investors and businesses are advocating for ambitious policies to combat the crisis, but only 55% align their focus.

How Climate Change Sways Markets

Researchers at CUHK Business School found that Google searches for “global warming” increased in cities with unusually warm weather, with people seeking relevant information more frequently.

Researchers found that investors in cities with warm weather tend to sell highly sensitive stocks, while those with low carbon footprints tend to buy less sensitive ones. Retail investors are more affected by abnormal weather, while institutional investors are less affected.

Power of Institutional Investors

Institutional investors, including banks, mutual funds, pensions, and insurance companies, are increasingly reducing their exposure to carbon-intensive US firms. The research, Measuring the Carbon Exposure of Institutional Investors, found that these investors have reduced their holdings in high-emission companies since 2015, indicating a growing awareness of climate risks and avoiding industries with high carbon footprints.

Impact of Regulatory Risk

A study by Prof. Gao and Chanik Jo reveals that climate change affects investment decisions of high-emission households in the US. The research found that adopting climate change-related action plans reduced risky asset holdings by 15%. However, stringent climate regulations led to a 2.75 percent reduction in risky asset holdings. The study suggests policymakers should implement climate regulations without increasing income risks for affected households.