Working Paper: CEPR ID: DP14568
Authors: Patrick Bolton; Marcin Kacperczyk
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.
Keywords: carbon emissions; climate change; stock returns; institutional investors
JEL Codes: G12; G23; G30; D62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher total CO2 emissions (F64) | Higher stock returns (G17) |
| Higher scope 1 emissions (L71) | Higher stock returns (G17) |
| Higher scope 2 emissions (L99) | Higher stock returns (G17) |
| Higher scope 3 emissions (L99) | Higher stock returns (G17) |
| Emission intensity (L94) | Stock returns (G12) |
| Higher emissions (F64) | Higher stock returns (G17) |