Sentiment and Environmental Performance

We identify a novel behavioral driver of environmental performance. An increase in country­-level consumer sentiment leads to sustained reduction in emission intensity over a multiyear horizon. Since consumer sentiment increases investment, productivity, energy efficiency, and stock market returns, a plausible explanation is that firms can afford to engage in costly reduction of emissions in a buoyant market. The effect tapers off over time and is stronger in countries where sentiment is a more reliable signal for the state of the economy. Our results suggest that policies boosting economic expectations yield substantial environmental benefits.