65 Pages Posted: 10 Mar 2017 Last revised: 1 Mar 2019
Date Written: February 27, 2019
The risks and opportunities arising from the transition process to a low-carbon economy affect firms’ business. We quantify this “carbon risk” via a “Brown-Minus-Green factor” derived from 1,600 firms with data from four major ESG databases. This factor allows estimating an applicable measure of carbon risk: “carbon beta”. We compute carbon betas for 39,000 firms and report them for countries and sectors. Firms can use carbon beta to understand their own carbon risk, regulators to gauge the impact of policy changes, and investors to directly manage carbon risk in their portfolios without hurting performance or preferences.
Keywords: Carbon risk, climate finance, climate change, economic transition, asset pricing
JEL Classification: G12, G15, Q51, Q54
Suggested Citation: Suggested Citation