Carbon Firm Devaluation and Green Actions

As climate change intensifies, high-emission firms exhibit lower price valuation ratios compared to their low-emission counterparts within the same country. Using data from 43 equity markets, we find that high-emission firms respond to equity price pressure by reducing carbon emissions, increasing green innovation, and downsizing operations. These changes are unlikely consequences of broader economy-wide trends, as similar patterns are not observed among private high-emission firms. We implement an instrumental variable strategy that leverages local natural disasters as exogenous shocks to high-emission firms’ stock prices, yielding consistent results. Our findings contribute to the ongoing debate on the effectiveness of sustainable investing.

Keywords: Price Valuation, Sustainable Investing, Carbon Emissions, Green Innovation, Climate Risks and Awareness

JEL Classification: D83, G11, G12, G30, Q54

Suggested Citation: Suggested Citation

Choi, Darwin and Gao, Zhenyu and Jiang, Wenxi and Zhang, Hulai, Carbon Firm Devaluation and Green Actions (January 22, 2026). Available at SSRN: https://ssrn.com/abstract=3589952 or http://dx.doi.org/10.2139/ssrn.3589952