The Green Transition

Using a novel measure of a firm’s green revenues, the paper presented in this Decarbonization Seminar sizes up the green economy. The authors shed light on the factors driving global public companies’ expansion of business activities in support of the green transition towards a low-carbon and more environmentally sustainable economy. Their analysis shows that the green economy grew at an accelerated pace after the Paris Agreement. Both regulatory initiatives and innovative US firms converting green patents into actual revenues from green products and services have led to this accelerated growth. The authors also document that a stronger presence of institutional investors prior to the Paris Agreement is associated with higher green revenues afterwards. Finally, they examine the stock returns of firms with high green revenues and find only modest evidence of a green alpha, which seems to be concentrated in US stocks in the post-Paris period.