People and Investor Attention to Climate Change

This paper empirically studies whether people and investors globally really see climate change as a major threat, as defined by United Nations Framework Convention on Climate Change. Our identification strategy aims to investigate two research questions: (1) whether people attention to Climate Change varies depending on local natural disasters and (2) how does the climate change attention affect the stock price of local firms and, thus, the investors’ trading behavior. With Google Search Volume Index considered as a tool to evaluate the attention parameter, from one side, we evaluated the attitude of common people towards climate-related natural disasters, which got statistically significant in the continuous time of 10 years rather than in more recent time, and from another side, we analyzed investors sentiment towards sustainable stocks (ESG). Our analysis for the sample of 2941 stocks in G20 countries during 2006-2019 revealed that investor attention to climate change drives them to cause a significantly positive effect on returns of stocks with high ESG score compared to low sustainable stocks, in terms of ESG score itself and its separate pillars. These results are robust to several additional risk factor models and also when considering environmental policy stringency framework and sin industries