Marcin Kacperczyk

Carbon Home Bias

Do institutional investors favor domestic over foreign stocks of companies with high carbon emissions? We undertake a global analysis of institutional investor portfolios and how institutional investors take into account the carbon footprints of the companies they can invest in. We find clear evidence of widespread underweighting of companies with higher carbon emissions by institutional investors around the world. This underweighting is largely driven by underinvestment in foreign companies with high carbon emissions both at the intensive (tilting) and extensive (exclusion) margins. Underinvestment in foreign companies with high emissions is larger in the post-2015 period. These results reveal the presence of a carbon home bias for domestic companies with high carbon emissions.