Investors are listening: how green funds are reshaping firms' incentives

This paper studies the relationship between green funds and firms' attention to sustainability. By using a natural language processing algorithm that extracts topics from texts, we measure the extent to which firms talk about sustainable energy during earnings conference calls. We use our measure to evaluate green funds' response to firms discussing sustainable energy. Our main result is that, when managers discuss sustainable energy topics, green funds respond by investing in the firm, while other funds divest. This corroborates the idea that green funds are essential to change firms' incentives and steer them towards the energy transition. Finally, we document that the overall attention that firms and funds pay to the environment is still very limited, although increasing in recent years