Climate Transition Risk in New Zealand Equities

29 Pages Posted: 15 Sep 2020

See all articles by Hamish Kennett

Hamish Kennett

affiliation not provided to SSRN

Ivan Diaz-Rainey

CEFGroup & Department of Accountancy and Finance, University of Otago

Pallab Kumar Biswas

University of Otago

Duminda Kuruppuarachchi

University of Otago - Department of Accountancy and Finance

Date Written: September 14, 2020

Abstract

We examine climate transition risk in New Zealand (NZ) equities given that NZ’s greenhouse gas (GHG) emissions are dominated by agricultural emissions and that carbon pricing has been in place since 2008. Only around half of NZX50 companies disclose emissions and that disclosure is driven by, inter alia, size and profitability. In terms of ‘hypothetical carbon liabilities’, Air New Zealand and Contact Energy are most exposed for Scope 1 and 2 emissions, but when upstream scope 3 GHG emissions are added, Fonterra (multinational dairy firm) is most at-risk. An asset pricing analysis shows that only volatility and extreme price movements in carbon price returns are priced. Overall, the results suggest that despite there being material climate transition risks for NZX50 equities, limited disclosure and low carbon prices mean that these risks are not likely to be fully priced in stock values.

Keywords: Climate Finance; Carbon Markets; Asset Pricing; Investment Analysis; Transition Risk; Greenhouse Gas Emissions; Corporate Disclosures

JEL Classification: G11, G12; Q51; Q52; Q54; Q58

Suggested Citation

Kennett, Hamish and Diaz-Rainey, Ivan and Biswas, Pallab Kumar and Kuruppuarachchi, Duminda, Climate Transition Risk in New Zealand Equities (September 14, 2020). USAEE Working Paper No. 20-469, Available at SSRN: https://ssrn.com/abstract=3692096 or http://dx.doi.org/10.2139/ssrn.3692096

Hamish Kennett

affiliation not provided to SSRN

Ivan Diaz-Rainey (Contact Author)

CEFGroup & Department of Accountancy and Finance, University of Otago ( email )

Dunedin
New Zealand

Pallab Kumar Biswas

University of Otago ( email )

P.O. Box 56
Dunedin, Otago 9010
New Zealand
+64 3 679 8108 (Phone)

Duminda Kuruppuarachchi

University of Otago - Department of Accountancy and Finance ( email )

PO Box 56
Dunedin, 9054
New Zealand

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