Decarbonization of funds through divestment: effects on funds and companies

• Applicants: Privatdozent Dr. Martin Rohleder; Professor Dr. Sebastian Utz; Professor Dr. Marco Wilkens
• Subject Area: Accounting and Finance
• Term: since 2025
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 557669199

CO2 divestment is intended to contribute to the urgently needed transformation to a CO2-free economy. Whether and to what extent this is possible is being discussed in theoretical studies in particular. However, there are hardly any empirical findings on this. An exception and central preliminary work of the applicants is the empirical study by Rohleder et al. (2022, JBF), which shows for the first time for the American and European stock market that CO2 divestment by equity funds was linked to the decline in share price and CO2 emissions of divested companies. This application aims to gain new and comprehensive empirical findings on the effect of CO2 divestment. In six work packages (AP), we will investigate how CO2 divestment on the stock and bond markets affects security prices and CO2 emissions (AP 1+2) as well as the decarbonized stock and bond portfolios (in particular performance, risk, and capital flows) (AP 3+4). Subsequently, CO2 divestment interactions between equity and bond markets (AP 5) and real company-level effects (AP 6) are examined. For the first time, the effects of private and institutional investors (mutual funds vs. separate accounts) as well as the strength of the effects in different periods (especially before and after the Paris Agreement) are differentiated. In addition, various CO2 divestment approaches and different CO2 emission measures will be analyzed for their impact. AP 1 is a significant extension of Rohleder et al. (2022), while the investigations planned in AP 2-6 are completely new. The central methodology was developed by Rohleder et al. (2022) and includes procedures for identifying decarbonized portfolios and divested securities. The effects of CO2 divestment are investigated using event studies with specific control groups, difference-in-difference analyses, and panel regressions with fixed effects and numerous control variables. Real events such as climate conferences and environmental disasters are used as quasi-experiments to identify causal relationships. The relevant data is already available to the applicants and extends the study period compared to Rohleder et al. (2022) by a relevant five years in which CO2 divestment tended to be more prevalent. The insights gained from the analysis should enable the instrument of CO2 divestment to be used in a more targeted and therefore more effective manner. This may include favoring certain approaches and certain measures and coordinating CO2 divestment in the various markets. In addition, this project is intended to provide information on the strength of the impact of CO2 divestment and can thus provide investors with indications as to when supporting the transformation of the economy is also or rather more effective via other impact channels such as engagement.

• DFG Programme: Research Grants