Work

Do Investors Care about Carbon Risk?

Year: 2019

Type: article

Abstract: This paper explores whether carbon emissions affect the cross-section of U.S. stock returns.We find that stocks of firms with higher total CO2 emissions (and changes in emissions) earn higher returns, after controlling for size, book-to-market, momentum, and other factors that predict returns.We cannot explain this carbon premium through differences in unexpected profitability or other known risk factors.We also find that institutional investors implement exclusionary screening based on direct emission intensity in a few salient industries.Overall, our results are consistent with an interpretation that investors are already demanding compensation for their exposure to carbon emission risk.

Source: Journal of Financial Economics

DOI: 10.1016/j.jfineco.2021.05.008

Authors: Patrick Bolton, Marcin Kacperczyk

Institutions: Center for Economic and Policy Research, Centre for Economic Policy Research, Imperial College London, Columbia University

Language: English

Topic: Sustainable Finance and Green Bonds

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Climate action

Open Access status: green

Funders: European Commission, H2020 European Research Council