Do Investors Care about Carbon Risk?
Overview
Paper Summary
This paper finds that stocks of companies with higher total carbon emissions, and increases in emissions, earn higher returns. This suggests that investors are already pricing in carbon emission risk and demanding compensation for their exposure to it. Interestingly, emission intensity has no significant impact on returns, despite its common use as a screening indicator by institutional investors.
Explain Like I'm Five
Scientists found that companies making more air pollution often give investors more money. This is like getting a reward for taking a bigger risk.
Possible Conflicts of Interest
None identified
Identified Limitations
Rating Explanation
This paper provides a comprehensive analysis of the relationship between carbon emissions and stock returns. The methodology is sound, with a cross-sectional analysis controlling for multiple factors. The findings offer valuable insights into the growing field of climate change and finance. While some limitations exist, such as data constraints and potential omitted variables, the overall research is strong and contributes significantly to the literature.
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