The Greenium matters: greenhouse gas emissions, environmental disclosures, and stock prices

37 Pages Posted: 13 Sep 2019 Last revised: 2 Oct 2020

See all articles by Alessi Lucia

Alessi Lucia

Joint Research Center of the European Commission; Università degli Studi di Milano-Bicocca - Center for European Studies (CefES)

Elisa Ossola

European Commission, Joint Research Centre

Roberto Panzica

Joint Research Center of the European Commission

Date Written: July 1, 2019

Abstract

This study provides evidence on the existence of a negative Greenium, i.e. a risk premium linked to firms’ greenness and environmental transparency, based on European individual stock returns. We define a priced ‘greenness and transparency’ factor based on companies’ greenhouse gas emissions and the quality of their environmental disclosures. Based on this factor, we offer a tool to assess the exposure of a portfolio to the risk associated with the low-carbon transition and hedge against it. We estimate that in a stressed scenario where greener and more transparent firms very much outperform brown stocks, there would be losses at the global level, including for European large banks, should investors fail to price climate-transition risks. These results call for the introduction of climate stress tests for systemically important financial institutions.

Keywords: Climate risk, ESG disclosure, factor models, asset pricing, stress test

JEL Classification: G01; G11; G12; Q01

Suggested Citation

Lucia, Alessi and Ossola, Elisa and Panzica, Roberto, The Greenium matters: greenhouse gas emissions, environmental disclosures, and stock prices (July 1, 2019). University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 418, Available at SSRN: https://ssrn.com/abstract=3452649 or http://dx.doi.org/10.2139/ssrn.3452649

Alessi Lucia (Contact Author)

Joint Research Center of the European Commission ( email )

Via E. Fermi 2749
Ispra (VA), I-21027
Italy

Università degli Studi di Milano-Bicocca - Center for European Studies (CefES) ( email )

U6 Building
Viale Piero e Alberto Pirelli, 22
Milano, 20126
Italy

Elisa Ossola

European Commission, Joint Research Centre ( email )

Belgium

Roberto Panzica

Joint Research Center of the European Commission ( email )

Via E. Fermi 2749
Ispra (VA), I-21027
Italy
93100 (Fax)

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