Green ECB speeches matter

ABSTRACT

We test the impact of green communication by the European Central Bank since a large part of the information from central banks comes from verbal communication. Developing and using a European Central Bank green sentiment index, we examine whether the ECB's green speeches cause a significant divergence in stock returns depending on how the company performs in terms of emissions reduction. We find that the green tone of the ECB positively (negatively) affects the most (least) eco-friendly firms based on their emissions score. It implies that central banks should communicate about greens topics because it significantly influences financial decisions.

KEYWORDS:

• Green finance
• ECB
• speeches
• stock returns

JEL:

• G10
• G11
• E58

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 omfif.org/2021/04/sustainable-inflows-break-new-records/#:∼:text = According%20to%20Morningstar's%20numbers%2C%20record,%24960bn%20a%20year%20earlier.

2 https://www.ecb.europa.eu/press/pr/date/2021/html/ecb.pr210125~715adb4e2b.en.html.

3 https://www.ecb.europa.eu/press/pr/date/2021/html/ecb.pr210708_1~f104919225.en.html.

4 https://www.ecb.europa.eu/press/key/date/2021/html/ecb.sp210303_1~f3df48854e.en.html.

5 https://www.ecb.europa.eu/press/key/date/html/index.en.html.

6 https://www.esade.edu/itemsweb/biblioteca/bbdd/inbbdd/archivos/Thomson_Reuters_ESG_Scores.pdf.

7 mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html.