Greenhouse Gas Emissions and Expected Returns

22 Pages Posted: 19 Oct 2020 Last revised: 24 Aug 2023

See all articles by Wei Dai

Wei Dai

Dimensional Fund Advisors

Date Written: October 19, 2020


We examine how company-level greenhouse gas emissions have been related to company financials as well as the expected returns of the companies’ stocks and bonds from 2009 to 2018. Examining the US, developed ex US, and emerging markets, we do not find emission intensity, emission level, or change in emission level to provide additional information about future profitability beyond what is contained in current profitability. In addition, we do not detect a reliable empirical relation between these emission metrics and average stock returns. Similarly, our analysis of US corporate bonds finds no compelling empirical evidence linking the issuers’ emission metrics to average bond returns. While a growing demand for investing in securities of companies with lower emissions should push their prices up and their expected returns down, the lack of strong empirical evidence of such an effect could be due to small changes in demand over the time period examined or noise in the security returns realized over a relatively short sample period.

Keywords: ESG, greenhouse gases, emissions, environmental finance, environmental economics, climate change, expected returns, fixed income, equities, factor investing, social cost of carbon

JEL Classification: A12, G12, Q5, Q54

Suggested Citation

Dai, Wei, Greenhouse Gas Emissions and Expected Returns (October 19, 2020). Available at SSRN: or

Wei Dai (Contact Author)

Dimensional Fund Advisors ( email )

6300 Bee Cave Road, Building One
Austin, TX 78746
United States

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