Industrial policies greening the economy aim to accelerate the transition to net-zero. We show that the US Inflation Reduction Act (IRA) raised sustainable investments globally. Using monthly data on individual funds domiciled in major financial centers and investing worldwide, we identify a novel international spillover channel of industrial policies through these global investment funds. Sustainable global investment funds received more inflows upon IRA enactment, in turn increasing their cross-border portfolio flows worldwide. Recipient economies better prepared to address climate change as measured by widely-used climate policy scores

benefited most from sustainable global funds’ additional investments in response to the IRA. These IRA spillovers are most pronounced for cross-border investments of passively managed exchange traded funds holding a multi-country portfolio, with investments mostly denominated in US dollars or euros. Developing and emerging economies with higher climate policy scores attracted more investments from sustainable global funds than advanced economies. The results are robust to a rich set of controls and fixed effects, absorbing recipient economies’ demand for foreign funds. Thus, global investment funds have become an important conduit for the international spillover of climate policies.

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