Impacts of climate pact on global oil and gas sector stocks

Abstract

Purpose The purpose of this study is to examine the impacts of the Glasgow Climate Pact on global oil and gas sector stocks. Further, this study also examines if the nations' Climate Change Performance Index (CCPI) and World Energy Trilemma Index (WETI) drive the abnormal returns around the event. Design/methodology/approach The authors apply the event study analysis to 691 global oil and gas firms across 52 countries. Further, they apply the cross-sectional examination of cumulative abnormal returns (CARs) across 502 firms. Findings The emerging markets experienced significant negative abnormal returns on the event day. The CCPI negatively affects longer pre-event CARs, while WETI significantly negatively associates with CARs during longer pre- and post-event windows. Volatility is negatively related to pre- and post-event abnormal returns, while past returns positively drive pre-event period CARs but negatively drive post-event window CARs. This study finds an interesting association between liquidity (CACL) and CARs, as CACL positively drives pre-event CARs, but post-event CARs are negatively associated with CACL. The CARs do not significantly correlate with leverage, size and book-to-market ratio. Practical implications This study's findings on the impact of climate risks on financial markets have significant implications for global regulatory bodies. Policymakers should reduce stock volatility and enhance environmental disclosures by publicly traded companies to accurately price and assess the potential impacts of climate risks. Governments should examine the effects of environmental restrictions on investor behavior, especially in developing countries with limited access to capital. Therefore, policymakers need to consider the far-reaching impacts of environmental regulations while introducing them. Originality/value Climate risks are expected to impact the global financial market significantly. Prior studies provide limited evidence on how such climate pacts impact the oil and gas sector. Hence, this study, while bridging this gap, provides important implications for policymakers and stakeholders, particularly the emerging markets that are more sensitive.

Balancing prosperity and sustainability: unraveling financial risks and green finance through a COP27 lens

“…It is an important step toward preventing a climate crisis. Besides, climate change adversely affects financial markets (Kumari et al , 2023). Hence, the endorsement of green innovation, efficient green finance and financial expansion might be beneficial in this regard for a sustainable environment.…”

Guest editorial: Sustainable finance

“…This special issue on Sustainable Finance includes papers from extensive sectors of financial sustainability. Among them, the climate impact of fossil energy stocks is examined by Kumari et al (2023). Several others study green bonds [Yadav et al (2023) and Piseddu and Vanhuyse (2023)] and green finance issues [Sajjad et al (2024)].…”

“…Several others study green bonds [Yadav et al (2023) and Piseddu and Vanhuyse (2023)] and green finance issues [Sajjad et al (2024)]. Studies that address governance and COP topics include Kumari et al (2023), Sajjad et al (2024), Almaqtari et al (2023), Peng and Smith III (2023) and Mardini and Elleuch Lahyani (2023). The relationship between green investments and energy commodities is analysed by Sharma et al (2023) and Yadav et al (2023).…”