Global Pricing of Carbon‐Transition Risk

Abstract

The energy transition away from fossil fuels exposes companies to carbon‐transition risk. Estimating the market‐based premium associated with carbon‐transition risk in a cross section of 14,400 firms in 77 countries, we find higher stock returns associated with higher levels and growth rates of carbon emissions in all sectors and most countries. Carbon premia related to emissions growth are greater for firms located in countries with lower economic development, larger energy sectors, and less inclusive political systems. Premia related to emission levels are higher in countries with stricter domestic climate policies. The latter have increased with investor awareness about climate change risk.This article is protected by copyright. All rights reserved

The impact of business group affiliation on CO2 emissions: evidence from Chile

“…Therefore, in line with previous studies (e.g. Aswani et al ., 2023; Bolton and Kacperczyk, 2021, 2022), we argue that emissions intensity, which is the ratio of CO2 emissions to revenue, serves as a more appropriate measure for evaluating carbon performance at the firm level.…”

Regional Green Development and Corporate Financialization: A Quasi-Natural Experiment on the Ecological Conservation and High-Quality Development of the Yellow River Basin

“…Primarily, previous studies indicated that ESG could alleviate market information asymmetry [58], enhance corporate values [59], and reduce financial asset allocations. Following the implementation of the YBCD, companies would invest in ESG to intensify the nexus between companies and market, alleviate information asymmetry among companies and stakeholders, and enhance investors' understanding of risks and values [64]. These endeavors would contribute to cultivating trust among stakeholders, including financial institutions, suppliers, and customers; decreasing operational costs; enhancing operational efficiency; and improving financial performance [65][66][67].…”

Climate transition risk and bank lending

“…Literature on transition risks has often identified the months around the Paris Agreement (COP21) as a period of increased salience of CTR, resulting in banks shifting their prevailing perception of those risks (e.g., Mueller and Sfrappini 2022;Bolton and Kacperczyk 2023). For instance, Delis et al (2021) look at the relation between climate policy exposure (quantified by a proxy for the amount of stranded assets of a fossil fuel firm in a given year) and syndicated loan spreads for fossil fuel firms, finding higher loan spreads to fossil fuel firms after 2015.…”

“…Finally, Antoniou et al (2020) Previous findings show that banks tend to price risks related to policy changes induced by climate issues. Bolton and Kacperczyk (2023) document that financial markets price climate transition risks, although the impact of the Paris Agreement is not uniform across countries. Degryse et al (2023) find that borrowers who are more transparent in disclosing their carbon emissions and emit fewer pollutants receive more favorable lending terms.…”

“…The main empirical challenge of identifying carbon transition risk drivers is that proxies for CTR are available at the country level only(Bolton and Kacperczyk 2023). Adding firm-level variation in carbon emissions, then, allows to mitigate bias concerns which may be related to potentially omitted country-level variables.…”