Do climate change risks and corporate governance encourage green M&A?¹

This study investigates whether climate change risk and corporate governance affect the decision to engage in green mergers and acquisitions (M&A), including the acquisition of green businesses and the divestiture of carbon-intensive businesses. The results show that firms in industries with high carbon dioxide (CO₂) emissions tend to acquire green businesses and divest carbon-intensive businesses. In particular, outside directors significantly promote decisions to sell carbon-intensive businesses. We also examine the short-term wealth effects of green M&A and find that divesting carbon-intensive businesses creates positive returns. The findings underscore the increasing acceptance of climate risk mitigation among corporate decision-makers and investors, emphasizing the critical role of corporate governance in shaping green M&A decisions.