Transparency and divestment : the impact of a public database about insurers' carbon-intensive investments on their portfolio choices

Abstract

In 2016, the California Department of Insurance (CDI) introduced a publicly accessible database that provides information on the holdings of carbon-intensive securities by certain California-licensed insurers. This database significantly reduces the costs for external stakeholders in assessing the scale of individual insurers’ investments in the carbon economy by eliminating the need to process complex investment data from insurers’ publicly available statutory filings. Using a difference-in-differences design, I find that after the introduction of the database, affected insurers (i.e., those included in the database) reduce their holdings of carbon-intensive securities relative to non-affected insurers. The reduction is more pronounced when insurers’ portfolio data in statutory filings are more difficult to process, when insurers with greater public visibility, and when insurers operate in states with more climate-conscious stakeholders. In terms of the economic consequences of insurers’ divestment, I find that affected insurers’ carbon-intensive investees reduce both the size and likelihood of bond offerings following the database’s introduction. In addition, these investees also reduce their capital expenditure. Overall, my findings suggest that enhancing transparency about institutions’ carbon-intensive investments can serve as an effective mechanism for redirecting capital flows away from the carbon economy.