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- Title
Welfare Consequences of Sustainable Finance.
- Authors
Hong, Harrison; Wang, Neng; Yang, Jinqiang
- Abstract
We model the welfare consequences of mandates that restrict investors to hold firms with net-zero carbon emissions. To qualify for these mandates, value-maximizing firms have to accumulate decarbonization capital. Qualification lowers a firm's required return by its decarbonization investments divided by Tobin's q, that is, the greenium or the dividend yield shareholders forgo to address the global-warming externality. The welfare-maximizing mandate approximates the first-best solution, yielding welfare gains compared to laissez-faire by mitigating the weather disaster risks resulting from carbon emissions. Our model generates optimal transition paths for decarbonization that we use to evaluate proposed net-zero targets. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online
- Subjects
WELFARE economics; SUSTAINABLE investing; CARBON emissions; INVESTORS; DIVIDEND yield; GLOBAL warming; NATURAL disasters; BUSINESS &; weather
- Publication
Review of Financial Studies, 2023, Vol 36, Issue 12, p4864
- ISSN
0893-9454
- Publication type
Article
- DOI
10.1093/rfs/hhad048