Climate change concerns meet return-chasing: Evidence from energy exchange-traded funds

Decarbonizing the global economy is a challenge requiring massive funding and coordination across all economic sectors. Energy ETFs play an important role in this transition. We find that investment flows into alternative energy ETFs (A-ETFs) increase with climate change risk. After the Paris Agreement, A-ETFs experience significantly stronger net flows than traditional energy ETFs (T-ETFs): A one-standard-deviation increase in fund return results in about 8-12% higher net flows per year to A-ETFs compared with T-ETFs. Return-sensitive investors appear to have joined the early climate-concerned investors after the global investment community made public its determination to take climate action post 2015.