Carbon Emissions and Firm Value

Abstract

Using hand-collected carbon emissions data for 2006-2008 that S&P 500 firms disclosed voluntarily to the Carbon Disclosure Project, we investigate the relationship between carbon emission levels and firm value. The study is motivated by a relationship between carbon emissions and global climate change that some informed observers expect will drive a redistribution of value from firms that do not control carbon emissions successfully to firms that do (GS Sustain [2009]). Concern about carbon emissions is shared by corporate executives, boards of directors, investors, creditors, standard setters, government regulators, and NGOs. We control for systematic firm-level characteristics that may be associated with managers’ decisions whether or not to voluntarily disclose carbon emissions. We find a negative association between carbon emission levels and firm value, contingent upon firms voluntarily disclosing their carbon emissions in the first place. Our sensitivity analyses and robustness test results are qualitatively similar to our main results.

Keywords: GHG emissions, Voluntary Disclosures