Are Carbon Emissions Associated with Stock Returns?

56 Pages Posted: 9 Mar 2021 Last revised: 31 Dec 2022

See all articles by Jitendra Aswani

Jitendra Aswani

Harvard University

Aneesh Raghunandan

London School of Economics

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation

Date Written: December 29, 2022

Abstract

An influential emerging literature documents strong correlations between emissions and stock returns. We reexamine that data and conclude that these associations are driven by two factors. First, stock returns are correlated only with unscaled emissions estimated by the data vendor, but not with unscaled emissions actually disclosed by firms. Vendor-estimated emissions systematically differ from firm-disclosed emissions and are highly correlated with financial fundamentals, suggesting that prior findings primarily capture the association between fundamentals and stock returns. Second, unscaled emissions, the variable typically used in academic literature, is correlated with stock returns but emissions intensity (emissions scaled by firm size), a more common measure in practice, is not. While unscaled emissions represents an important metric for society we argue that, for individual firms, emissions intensity is an appropriate measurement choice to assess carbon performance. The associations between emissions and returns disappear after accounting for either of the issues above.

Keywords: Carbon Emissions, Stock Returns, Operating Performance, Trucost, Estimated Emissions

JEL Classification: M14, G23, G34

Suggested Citation

Aswani, Jitendra and Raghunandan, Aneesh and Rajgopal, Shivaram, Are Carbon Emissions Associated with Stock Returns? (December 29, 2022). Columbia Business School Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=3800193 or http://dx.doi.org/10.2139/ssrn.3800193

Jitendra Aswani

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Aneesh Raghunandan (Contact Author)

London School of Economics ( email )

United Kingdom

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1,966
Abstract Views
5,795
Rank
12,564
PlumX Metrics