Examining the impact of climate related policy changes and intergovernmental climate conferences on the returns of high esg rates equities in the Usa and Europe

Abstract

This paper aims to establish the relationship between climate-related policy changes and global climate conferences in Europe and the United States (U.S.) with the returns of high ESG-rated stocks in both respective markets. A set of regression analyses based on the Fama French three-factor model were employed to inform the paper's conclusions. This paper suggests that climate change will cause a fundamental shift in the flow of capital in financial markets. The findings of this research suggest that in Europe, contrary to intuitive expectations, climate policy has not positively affected the returns of high ESG-rated stocks. Surprisingly, the opposite relationship was discovered in the United States (U.S.) analysis for the period analysed. However, further analysis has suggested that the effect of climate policy in the U.S. may be very dependent on the administration in control. The implications of these findings guide policymakers and investors alike on how climate change will affect financial markets in the future whilst also showing the limitations to current climate regulation in both the U.S. and Europe