The Corporate Finance of Climate Change: Theory and Evidence
Paper Session
Sunday, Jan. 3, 2027 8:00 AM - 10:00 AM (EST)
- Chair: Mariano Croce, Bocconi University
Financially Constrained Carbon Management
Abstract
We develop a model studying how financing frictions affect a firm’s carbon footprint as well as its transition to sustainable technologies, while allowing for multiple types of green investment: abatement of carbon emissions, adoption of available technologies, and green innovation. Financing frictions impact each type of green investment differently—with abatement unaffected, a negative effect on adoption, and an ambiguous impact on green innovation. Financing frictions reduce current emissions by contracting production, but have a negative impact on the transition to greener technologies in firms relying mainly on adoption. We further show tilting strategies need not boost green innovation, exclusion strategies mainly curb current emissions, and subsidies to adoption help incentivize green innovation too.Value, Values, and Opportunities in Corporate Environmental Practices
Abstract
Understanding how financial markets interpret and value corporate environmental practices is critical for effective climate policy and capital allocation. We examine this through sell-side analysts, key information intermediaries whose views shape market behavior, using survey responses from 505 analysts and textual analysis of 273,664 reports. Analysts devote substantial attention to environmental issues. The majority of analysts cover such topics for their value-relevance, while a non-trivial portion also consider non-financial values. Critically, they view environmental factors as prominent business opportunities rather than merely risks and incorporate these perceptions into earnings forecasts and stock recommendations. These assessments also predict subsequent firm performance. When evaluating drivers of corporate environmental improvement, analysts rank government regulations and media pressure as most influential, while rating institutional investors and employees substantially lower. Overall, the consistent survey and textual evidence underscore value-driven analysis, financial materiality of environmental opportunities, and suggest that meaningful environmental progress may be most effectively achieved through robust regulatory frameworks and public accountability mechanisms rather than relying primarily on market-based investor pressure.Carbon in the Cloud
Abstract
This paper studies how AI investment affects corporate emissions in a large global sample. Firms with higher AI worker shares subsequently reduce Scope 1 emissions on average, but effects are heterogeneous across sectors. Emissions fall broadly through improved forecasting and operational efficiency, whereas Energy and Utilities see emissions increase as AI is disproportionately used to expand carbon-intensive output rather than accelerate the green transition. Instrumental variable estimates using H-1B visa lotteries support a causal interpretation. In the aggregate, the emissions-weighted effect is close to zero, suggesting that brown AI use in a small set of high-emitting sectors offsets emission reductions elsewhere. Estimated emissions from electricity used for AI computing remain modest relative to these operational responses.Discussant(s)
Ran Duchin
,
Boston College
Maxime Sauzet
,
Boston University
Stefano Rossi
,
Bocconi University
Marco Grotteria
,
London Business School
JEL Classifications
- G3 - Corporate Finance and Governance