The Impact of the Paris Agreement on Fossil Fuel Companies: An Event Study Analysis

This study employs an event study approach to investigate the impact of the Paris Agreement on the stock returns of 30 major global fossil fuel companies, a critical analysis amid escalating global efforts to decarbonize energy systems. Utilizing daily stock price data extracted from Yahoo Finance, with the Dow Jones Industrial Average serving as the market benchmark, the research calculates abnormal returns (AR) and cumulative abnormal returns (CAR), complemented by t-tests to assess statistical significance. The analysis spans two distinct time windows: a short-term event window (December 7–18, 2015) to capture immediate market reactions and a medium-term post-event window (December 21, 2015–February 5, 2016) to evaluate sustained effects. Results indicate that short-term abnormal returns exhibit substantial volatility without achieving statistical significance, reflecting investor uncertainty regarding the agreement’s immediate implications. In contrast, medium-term cumulative abnormal returns demonstrate significant negativity, with coal and power companies recording the most pronounced declines; notably, even diversified energy firms, despite their broader portfolios, face heightened market skepticism. These findings underscore the increasing integration of climate policies into global financial markets, emphasizing the imperative for fossil fuel companies to expedite low-carbon transition strategies to align with evolving global decarbonization objectives.