Climate Patents and Financial Markets

We study the financial markets reaction to climate patents announcements. Exploiting quasi-random variations in patent examiner leniency to allow for causal interpretations, we find that firms with fortuitous climate patent grants benefit from positive medium-run abnormal stock returns and a lower cost of capital compared to similarly innovative but unlucky firms. These effects are amplified during periods of high attention to climate change, for firms with high climate exposure, and for first-time grants of climate patents. Random grants of climate patents also lead to an inflow of responsible institutional investors and to better environmental ratings. They do not produce improvements in the innovator's operating performance or carbon emissions, but the underlying climate technologies do, suggesting that financial markets react to the signal value of climate patent grants.