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. Overall, our results are consistent with an interpretation that investors are already demanding compensation for their exposure to carbon emission risk. Join Patrick Bolton and Marcin Kacperczyk as they discuss carbon risk and if investors care.
- Patrick Bolton, Barbara and David Zalaznick Professor of Business Finance and Economics at Columbia University and Visiting Professor of Finance at Imperial College of London
- Marcin Kacperczyk, Professor of Finance, Imperial College of London