Do investors care about carbon risk?

By Patrick Bolton, Marcin T. Kacperczyk. Journal of Financial Economics, 2020

2,175 citations recorded by the source corpus.

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.

View Paper: https://www.semanticscholar.org/paper/bb368dc58b6600fa6a05b42604dabf0cb6443b26

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

Citations in the corpus

The impact of climate change on the cost of bank loans (2020, unknown): “energy, Bolton and Kacperczyk (2020b) document a significant premium for the carbon-”
Climate change events and stock market returns (2021, background): “Recent studies show that investors recognize climate risk (Krueger, Sautner, and Starks 2020), and they require higher returns from ﬁ rms with higher emission levels (Bolton and Kacperczyk 2021).”
Climate Regulatory Risks and Corporate Bonds (2020, unknown): “…well as corporate managers’ leverage decisions, aﬀecting the tail risk of stock returns and the pricing of stocks and municipal bonds in the cross-section (Ginglinger and Moreau, 2019; Kr¨uger, Sautner, and Starks, 2020; Ilhan, Sautner, and Vilkov, 2020; Bolton and Kacperczyk, 2020; Painter, 2020).”
Sustainable investing in equilibrium (2019, background): “Bolton and Kacperczyk (2019) conclude that investors demand compensation for exposure to carbon risk in the form of higher returns on carbon-intensive firms.”
Carbon Tail Risk (2020, unknown): “5 Bolton and Kacperczyk (2019) explain their finding with Gennaioli and Shleifer’s (2010) local thinking hypothesis, whereby investors use a coarse categorization of firms within a given industry when evaluating carbon risks.”
Dissecting Climate Risks: Are they Reflected in Stock Prices? (2021, methodology): “, Gertler and Gilchrist (1994), Campello and Chen (2010))), and that financially constrained firms tend to pollute more than the unconstrained ones (Bartram et al.”
Climate Risk and Capital Structure (2019, unknown): “The Carbon Tracker Initiative (2013) emphasizes that listed oil, gas, and coal companies still largely invest in locating and developing new fossil fuel reserves, and Bolton and Kacperczyk (2019) even find a carbon premium.”