59 Pages Posted: 10 Mar 2017 Last revised: 14 Jul 2018
Date Written: June 29, 2018
The climate change induced transition of the economy bears existential risk for firms: carbon risk. Based on a unique sample of 1,600 global firms with comprehensive carbon risk proxies from four major ESG databases, we construct a carbon risk factor from stock returns of brown and green firms. This factor can be used in established factor models to estimate Carbon Beta as a straightforward measure for carbon risk absent any firm specific carbon risk information. Estimating Carbon Betas for more than 39,000 firms, we report the carbon risk of portfolios, industries, and countries. Our results can be used by firms to understand their own carbon risk, by regulators to gauge the impact of policy changes, and by investors to directly manage carbon risk in their portfolios without hurting performance.
Keywords: Carbon risk, climate finance, economic transition, climate change, asset pricing
JEL Classification: G12, G15, Q51, Q54
Suggested Citation: Suggested Citation