Corporate Responses to Climate Change and Financial Performance: The Impact of Climate Policy

CER-ETH - Center of Economic Research at ETH Zurich, Working paper No. 09/105

41 Pages Posted: 27 Feb 2009

See all articles by Andreas Ziegler

Andreas Ziegler

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); University of Zurich

Timo Busch

University of Hamburg

Volker H. Hoffmann

ETH Zürich

Date Written: February 2009

Abstract

This paper examines the relationship between corporate activities to address climate change and stock performance. By separately analyzing the US and European stock markets for different sub-periods, we highlight the impact of the underlying climate policy regime. Methodologically, we compare risk-adjusted returns of stock portfolios comprising corporations that differ in their responses to climate change. In this respect, we apply the flexible Carhart four-factor model besides the restricted one-factor model based on the Capital Asset Pricing Model (CAPM). While our portfolio analysis shows negative relationships over the entire observation period from 2001 to 2006, we find that a trading strategy, which bought stocks of corporations with a higher level of responses to climate change and sold stocks of corporations with a lower level, led to negative abnormal returns in regions and periods with less ambitious climate policy, but to positive abnormal returns in regions and periods with stringent climate policy.

Keywords: Climate change, Climate policy, Corporate environmental performance, Financial performance, Portfolio analysis, Asset pricing models

JEL Classification: Q54, Q48, M14, G11, G12

Suggested Citation

Ziegler, Andreas and Busch, Timo and Hoffmann, Volker H., Corporate Responses to Climate Change and Financial Performance: The Impact of Climate Policy (February 2009). CER-ETH - Center of Economic Research at ETH Zurich, Working paper No. 09/105. Available at SSRN: https://ssrn.com/abstract=1348476 or http://dx.doi.org/10.2139/ssrn.1348476

Andreas Ziegler (Contact Author)

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC) ( email )

Zürichbergstrasse 18
Zurich, 8032
Switzerland
+41 (0) 44632 0398 (Phone)
+41 (0) 44632 1362 (Fax)

University of Zurich

Künstlergasse 15a
Zurich, 8001
Switzerland
+41 (0) 44634 4020 (Phone)
+41 (0) 44634 4900 (Fax)

Timo Busch

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

Volker H. Hoffmann

ETH Zürich ( email )

Zürichbergstrasse 18
8092 Zurich, CH-1015
Switzerland

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