Does climate change affect the trading volume of sustainable funds?

Details

Supervisors

D'Hondt, Catherine

Faculty

Louvain School of Management

Degree label

Master [120] en sciences de gestion, à finalité spécialisée

Abstract

This thesis examines a question related to sustainable finance. We will conduct an analysis of trading volume to highlight potential effects linking climate change to the traded volume of ETFs that meet the criteria of Articles 8 or 9 of the SFDR. This study is notably inspired by the works of Hartzmark & Sussman (2019) and Leclercq (2023). The study will be conducted on a sample comprising European ETFs that adhere to the criteria outlined in Articles 8 and 9 of the Sustainable Finance Disclosure Regulation (SFDR). The study period will cover from November 2018 to December 2022. Different regression analyses will be applied to our panel data. Initially, we will conduct regressions where each climate change indicator is taken separately, in order to observe the individual impact of each indicator on the trading volume of our sustainable ETFs. Subsequently, a final regression will be performed, incorporating all climate change indicators simultaneously to account for potential interactions between them. Our findings reveal that as climate-related natural disasters in Europe, represented by the number of flash floods and wildfires, increase, the trading volume of ETFs meeting the criteria of articles 8 and 9 of the SFDR also increases. Furthermore, in our comprehensive regression, we observe that a decrease in greenhouse gas emissions in Europe leads to an increase in the trading volume of sustainable ETFs. Surprisingly, the rise in temperature anomalies in Europe has a negative impact on the traded volume of our sample of sustainable ETFs. Expanding our scope beyond Europe and analyzing sea ice extent anomalies around the poles, we observe that the greater these anomalies become, the more the trading volume of sustainable ETFs increases. However, we emphasize the importance of interpreting these results with caution, as other variables could potentially explain the fluctuations in the traded volume of ETFs meeting the criteria of Articles 8 and 9 of the SFDR. Few studies have delved into climate change as an explanatory factor for the traded volume of ETFs meeting the criteria of Articles 8 and 9 of the SFDR. Hence, this study holds significance in venturing to explore how climate change, manifested through various indicators, influences investment decisions in favor of sustainable funds.