We show that climate transition risks can significantly disrupt supply chain networks. Specifically, suppliers affected by the California cap-and-trade program are more likely to lose customer relationships and less likely to form new ones compared to their peers unaffected by the program. The effects are more pronounced among suppliers facing high competitive pressure and producing standardized inputs. Additionally, affected suppliers experience declines in revenues, assets, and profitability. This supply chain rewiring induced by uncoordinated climate policies is consistent with carbon leakage, as customers exposed to the program through production networks show an increase in their supply chain emission intensity.

This paper studies how imposing restrictions on public pension funds over ESG investments affects the mutual fund industry. I exploit state-level staggered variation in the recent implementation of two types of anti-ESG laws targeting state and local public pension funds: anti-boycott and anti-ESG investing laws. Using a difference-in-differences analysis based on mutual funds' heterogeneous exposure to these laws within states, I show that mutual funds align their portfolios with the restrictions imposed on state and local public pension funds by anti-ESG laws. I find that mutual funds reduce portfolio ESG scores by 1.5% and allocate more assets to the fossil fuel industry in response to anti-boycott laws, while reducing ESG scores by 3 - 12% in response to anti-ESG investing laws. These changes positively influence fund flows and have spillover effects on out-of-state and international institutional investors. Overall, the results suggest that anti-ESG legislation targeting state and local public pension funds has significant implications for the mutual fund industry and other institutional investors.

Does the political context influence the weight investors place on non-pecuniary motives when making financial decisions? We provide evidence from incentivized surveys of U.S. investors before and after the 2024 U.S. presidential election. Following Trump’s victory, investors reduced the average green investments due to a revision in financial expectations. However, investors who strongly disapprove of his climate policy increased their non-pecuniary appetite for green assets. These “contrarians” revised their investments by placing greater weight on climate-related considerations and less on financial ones, suggesting that they view green investing as a way to compensate for perceived climate policy inaction. Empirical analyses of real-world ETF flows align with this interpretation. The findings have implications for understanding and modeling values-based investment behavior.