Mandatory Disclosure of Investors’ Fossil Fuel Holdings

Regulators around the world have begun to require investment companies to provide information regarding fossil fuel investments to external stakeholders. In this paper we examine whether such disclosures impact the investment portfolios and/or investment policies of the disclosing firms. Using a 2016 California disclosure mandate that required some U.S. insurance companies to disclose their fossil fuel investments on a public website, we find the disclosing insurers reduced their fossil fuel investments by approximately 20% relative to the non-disclosers. Despite this on-average result, we note significant variation in changes to investment portfolios. We find insurers pressured by external stakeholders, including public shareholders and environmental activists, are more likely to divest. In contrast, enhanced Californian regulatory oversight power is unrelated to divesture. Even after the disclosure mandate is reversed, we find the disclosing insurers do not revert to their pre-policy holdings of fossil fuel investments, suggesting the impact created a longer-term change in investment behavior.