NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Do Investors Care about Carbon Risk?

Patrick Bolton, Marcin Kacperczyk

NBER Working Paper No. 26968
Issued in April 2020
NBER Program(s):Asset Pricing, Corporate Finance, Environment and Energy Economics

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.

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Document Object Identifier (DOI): 10.3386/w26968

 
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