FIASI/Fordham Sustainable Finance in Fixed Income Research Competition 2024  Award Winner Research Paper Presentation

• Author: Mayank Kumar
• Ross School of Business, University of Michigan, Ph.D. in Finance candidate
• Title: Getting Dirty Before You Get Clean: Institutional Investment in Fossil Fuels and the Green Transition
• Abstract: Contrary to the prevailing notion that private equity investment in fossil fuels adversely affects environmental outcomes, this paper shows that it can facilitate the green transition by allowing cleaner technologies to develop. I show that private equity (PE) acquisitions of fossil fuel power plants are followed by an 8% higher likelihood of solar development and a 10% increase in the number of solar plants in the same county. This increase comes from institutional investment in solar, specifically from the investors related to the PE owners of fossil plants. I establish a causal link between the PE acquisition of fossil plants and solar development using the intensity of sunlight that falls on fossil plants as a measure of solar investment opportunity and the passage of the investment tax credits that made solar power commercially attractive. In a difference-in-differences setting, I show that PE firms are more likely to buy fossil plants that provide higher solar investment opportunities. These findings suggest that regulations prohibiting PE investment in fossil fuels may prevent clean energy financing and impede the green transition.

Date:  May 15, 2024 at 4:00 PM EST
Venue:  Virtual event only