Weathering AI: Artificial Intelligence, Climate Change, and the Paris Agreement
Do firms that adopt AI more extensively adapt better to climate policies?
In this study, Professor Pornsit Jiraporn and colleagues examine how AI adoption influences firm performance in the U.S. stock market amid evolving climate policies, using the 2015 Paris Agreement as a key policy shift.
We explore the impact of artificial intelligence (AI) workforce adoption on shareholder value in the context of climate change, using stock market reactions to the Paris Agreement as a natural experiment. Leveraging an innovative dataset from Babina et al. (2024), which employs advanced textual analysis to measure AI-skilled employees, we provide empirical evidence that AI workforce adoption significantly enhances cumulative abnormal returns during this critical policy event. Firms with greater climate change exposure derive smaller benefits from AI adoption, likely because of competing priorities between investing in AI initiatives and addressing climate-related strategies. Moreover, AI adoption enhances R&D efforts, signaling strong innovation potential, but raises concerns about resource allocation in highly profitable firms. Finally, we demonstrate that abnormal returns attributable to AI workforce adoption predict long-term firm value, emphasizing AI’s strategic importance in driving shareholder value and adaptability in a climate-conscious economy.
