Trading energy stocks turns skeptics into supporters of climate action

In an increasingly polarized political environment, messaging about the impact of climate change doesn’t always have lasting power. For those looking to build policy support for large-scale climate action, it may pay to encourage people to boost their financial literacy.

A recent paper co-authored by three professors from the MIT Sloan School of Management — Michelle Hanlon, Namrata Kala, and Nemit Shroff — shows that giving people the opportunity to trade energy stocks can increase their support for government and business actions to counter climate change. This was especially true for those who were self-described climate skeptics before participating in the trading.

The key, according to the paper, is giving people a mechanism and motivation for educating themselves using financial news outlets, rather than simply telling them about the benefits of green energy.

“Even an investment incentive as low as $50 focused people toward learning about energy markets,” Kala said. “Their financial literacy improved, and their knowledge of climate change and companies’ environmental impact improved. That’s why we think their support for green policies changed.”

Taking a complementary approach to messaging about climate change

Over the past decade, there’s been a growing body of academic research forecasting how climate change will impact the world economy. Some models are optimistic, but most predictions point to GDP losses ranging from those experienced during a typical recession to those of the Great Depression.

Nonetheless, messaging about climate change and its impact — whether scientific, theoretical, or moral — hasn’t increased support for mitigation policies. Most of the positive effects of such messaging are short-lived, according to the paper’s meta-analysis, and even “contextually sound” messages can contribute to backlash against climate policies.

Kala and her co-authors, who also include Saumitra Jha from Stanford University and Chagai M. Weiss from the University of Toronto, sought a complementary approach to engagement. The aim was to avoid paternalistic interventions and policy debates —approaches that tend to emphasize telling people what to do.

Instead, they turned to financial markets. “We weren’t telling people what to believe. We were giving them stakes that would motivate them to learn,” Kala said.

How the researchers conducted their study

The researchers surveyed more than 3,800 Americans about their beliefs regarding humans’ role in causing climate change, their financial literacy, and their media consumption habits. All told, participants were surveyed four times: at the study’s outset, three weeks later, seven weeks later, and eight months later.

A subset of more than 2,400 people were selected to use a stock-trading module for six weeks, with 80% receiving either $50 or $100 to trade. Another set of respondents was given access to the trading platform and $100 in a “fantasy condition” with no actual value, to simulate access to the same environment but with no financial stake. 

Roughly half of the people in the stock-trading program were given access to portfolios of “green” stocks (primarily solar energy companies), and the other half had access to “brown” stocks (companies dependent on fossil fuels). After three weeks, all of the traders could choose either type of stock for the remaining three weeks.

Financial stakes motivate shifts in behavior, beliefs

The survey results showed that people trading stocks were more likely than nontraders (the control group, who only completed the surveys) to shift their behavior in three ways:

• Traders were “more likely to believe in the role of human agency in causing climate change and to perceive the benefits of the green transition more positively,” the researchers write.
• Traders were more likely to increase their support for mitigation policies to counter the impact of climate change, including government and business actions, as well as personal actions, such as donating to environmental causes. 
• Traders were more likely to increase their consumption of financial news sources (such as The Wall Street Journal or the Financial Times) and decrease their consumption of Fox News and social media. 

These results were consistent regardless of the type of stock in participants’ portfolios. “Trading both green [and] brown stock made people read more and change policy support, which was surprising but consistent with changes to their media consumption,” Kala said.

The results also showed that investing on a small scale — as little as $50 — was enough to prompt people to learn, Kala continued. This means that removing barriers to participation in financial markets could have the added benefit of increasing support for mitigation policies, particularly in communities vulnerable to the effects of climate change.

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Broader support for systemic action on climate change

Two trends in the data did fade between the seven-week and eight-month surveys: Support for mitigation policies and consumption of financial news fell by about half, though neither average returned to its baseline from the initial survey. “Continued financial market participation might matter here,” Kala said, noting that the trading experiment lasted for just six weeks. 

Data on support for personal action also showed some quirks, with study subjects showing a preference for systemic actions rather than day-to-day behavior modifications. Specifically, people were more likely to reconsider their investment decisions, donate to climate change causes, or even rethink where they live and work than they were to make day-to-day green adjustments, such as switching to reusable grocery bags. 

Kala suggested that that may have been an unintended consequence of consuming more financial news: “They may have learned that systemic change is more important. When you’re talking about business and government policies and a willingness to donate to environmental causes” — which the research studied specifically — “that’s real money on the table.”

Kala said that as a next step, she hopes to explore how investors respond to corporate climate disclosures. Explaining sustainability goals and initiatives in familiar terminology may have a more lasting impact, she said — especially as more investors with green energy on their minds enter the financial market.

“Seeing Green: The Effects of Financial Exposures on Support for Climate Action” was written by Michelle Hanlon, Saumitra Jha, Namrata Kala, Nemit Shroff, and Chagai M. Weiss. 

Namrata Kala is an associate professor in applied economics at the MIT Sloan School of Management, with research interests in environmental and development economics. Her current research projects include studying how firms and households learn about and adapt to environmental change and regulation, and the financial returns of environmental technologies and of worker training and incentives.