Do Climate Negotiations Move Markets? Evidence Across Successive COP Conferences

Abstract

Purpose – The present research evaluates how the successive global climate conferences held since COP26 in Glasgow through COP29 in Baku has affected the abnormal returns for Indian firms who operate in industry sectors that are considered environmentally intensive, along with the extent to which firm-specific attributes affect CARs.

Research Methodology – This empirical study employed event-study methodology combined with a multivariate cross-sectional regression methodology. The sample size used was 186 firms with a total of 744 firm-year observations from the BSE500 Index from 01 Apr 2021 to 31 Mar 2025.

Findings – The results show that the first two COP events (COP26 & 27) were associated with significant negative market reaction, especially in high-emission industries, however, the last two COP events (COP28 & 29), indicated relatively stable and segmented investor response. A sectoral level analysis also demonstrated that there has been a trend towards positive abnormal returns in the Renewable Energy and Infrastructure sectors because of enhanced policy clarity and increased investment momentum. Finally, the cross-sectional regression also established that the BTM ratio has been the most consistent factor determining firm sensitivity to climate policy announcement, and that previous returns have exhibited long-term mean-reversion effects. The research has shown that investor perceptions regarding climate policy developments have matured and investor behavior will continue to reflect this increasing awareness of climate policy developments and that the development of global environmental regimes will be correlated with the maturation of investor behavior.

Practical Implications – The implications suggest that there is a need for consistent and transparent climate policies so that investors can feel confident in investing and that the firms, especially those in carbon-intensive sectors, should expedite their transition to being "green" and incorporate sustainable business practices into their overall strategy to reduce regulatory risk and improve their long term valuation.