Get Green or Die Trying? Carbon Risk Integration into Portfolio Management

Görgen, Maximilian; Jacob, Andrea; Nerlinger, Martin

doi:10.3905/jpm.2020.1.200

Cited by 25 publications

(11 citation statements)

References 18 publications

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“…Bolton and Kacperczyk find a positive carbon premium associated with total emissions, but not with emission intensity (i.e., emissions per unit of sales). Görgen et al (2020) find an insignificantly negative carbon premium when they combine multiple carbon-emission-related measures and use a sample period closer to ours, 2010 to 2017. Finally, carbon emissions are only one of 13 firm characteristics that enter MSCI's environmental scores, which we use to determine firm greenness.…”

Section: Realized Green Stock Returnsmentioning

confidence: 48%

“…A second, larger set of studies examine returns on an ex post basis, measuring realized green-versus-brown returns, generally for stocks. Examples include Garvey, Iyer, and Nash (2018), In, Park, and Monk (2019), Kacperczyk (2020, 2021), Görgen et al (2020), Hsu, Li, and Tsou (2020), and Aswani, Raghunandan, and Rajgopal (2021. We examine returns both ex ante and ex post, focusing on the distinction between expected and realized returns, in the spirit of Elton (1999).…”

Section: Introductionmentioning

confidence: 99%

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Dissecting green returns

Pástor

Stambaugh

Taylor

2022

Journal of Financial Economics

449

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Section: Realized Green Stock Returnsmentioning

confidence: 48%

Section: Introductionmentioning

confidence: 99%

Dissecting green returns

Pástor

Stambaugh

Taylor

2022

Journal of Financial Economics

449

View full text Add to dashboard Cite

“…This method of estimating emission performance has lately acquired popularity in the literature. Görgen et al (2020), for example, include carbon risk into portfolio selection and show that it is feasible to create a portfolio with a desired degree of carbon risk exposure. More detailed information about the construction of the emissions score can be obtained from Refinitiv.…”

Section: Sample Selection and Data Descriptionmentioning

confidence: 99%

Carbon emissions, corporate governance, and staggered boards

2022

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Carbon emissions have been identified as a major cause of global warming and are harmful to the environment. Given the seriousness of climate changes, businesses are encouraged to adopt corporate strategies to improve environmental performance. Staggered boards (or classified boards) are one of the controversial corporate governance devices being employed by corporations that protect managers from the market for corporate control. This paper explores whether staggered boards can be a useful business strategy to improve carbon emissions. Relying on a novel data set in which the presence of a staggered board is identified through advanced machine learning algorithms and textual analysis, we find that staggered boards bring about significantly worse emission performance by 10.67%. Our results corroborate the premise that staggered boards insulate self‐interested managers from market discipline and thus exacerbate agency problems, resulting in more unfavorable outcomes. Further analysis validates the results, that is, propensity score matching, entropy balancing, instrumental‐variable analysis, and generalized method of moments (GMM) dynamic panel data estimation. Importantly, we include firm fixed effects to account for unobserved heterogeneity. Our findings indicate that de‐staggered boards may help improve emission performance.

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“…While social and governance considerations are of utmost importance, the aspect of environmental responsibility is of particular relevance for firms, since environmental failures constitute a major source of risk due to substantial legal fines and reputation losses. However, our article leaves aside the ongoing debate about the integration of carbon (or climate) risk in portfolio decisions as for example provided in Focardi Sergio [35], or Görgen [36]. Based on this prior evidence we formulate Hypotheses 2 and 3.…”

Section: Environmental Factors and Financial Performancementioning

confidence: 99%

Environmental Portfolios—Evidence from Screening and Passive Portfolio Management

2021

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Environmental portfolios via screening or optimization with respect to ecological criteria are not clear-cut concepts. Often, they urge investors to reduce the asset universe, which is accompanied by diversification losses. In this article, we show that a simple passive asset selection strategy based on environmental criteria allows ecological investors to adjust their portfolios without compromising or even reducing risk-adjusted financial performance. In detail, we show that screening does not lead to a significant financial performance reduction. Moreover, we propose an asset selection based on an environmental criteria that improves the portfolios’ financial performance, and further improves its potential positive environmental impact. Our results suggest that a combination of a screening and an environmental-scoring-based asset allocation seems to be a viable option for environmentally responsible investors leveraging the advantages of both strategies. Furthermore, we construct a risk factor CMP (clean minus polluting) and document a significant factor loading when added to the Fama–French five-factor model, suggesting the existence of a risk premium based on a firm’s environmental performance.

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Get Green or Die Trying? Carbon Risk Integration into Portfolio Management

Cited by 25 publications

References 18 publications

Dissecting green returns

Dissecting green returns

Carbon emissions, corporate governance, and staggered boards

Environmental Portfolios—Evidence from Screening and Passive Portfolio Management

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