Green vs. Brown: How the Paris Agreement Altered the Operating Performance of U.S. Firms

Abstract

Existing research shows that financial markets have increasingly priced climate related risks, with low-emission (“green”) firms outperforming high-emission (“brown”) firms during periods of heightened climate concern, particularly following the Paris Agreement. However, financial market valuations are influenced by expectations, sentiment, and noise, and may not accurately reflect firms'real operating adjustments. Whether climate policy signals translate into observable changes in corporate operations therefore remains an open question. This paper examines whether the Paris Agreement led to differential changes in the operating performance of high- and low-emission firms in the United States. Using firm-level data for S&P 500 companies from 2012 to 2019, firms are classified as high- or low-emission based on industry-relative carbon intensity. A difference-in-differences framework is employed to compare operating outcomes before and after the Agreement’s entry into force. The empirical results indicate limited evidence of short-run effects on operating profitability. No statistically significant differences are found in EBITDA or return on assets between high- and low-emission firms following the Paris Agreement. In contrast, asset turnover declines modestly for more emission-intensive firms, suggesting weaker asset utilization after the Agreement. Overall, the findings highlight a potential disconnect between climate-related financial market pricing and real operational adjustments, and contribute to bridging the climate finance and corporate operations literatures.