Are Carbon Emissions Associated with Stock Returns?

86 Pages Posted: 9 Mar 2021 Last revised: 23 May 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: May 13, 2022

Abstract

An influential emerging literature documents strong correlations between emissions and both stock returns and operating performance. We reexamine that data and conclude that these associations are driven by three factors. First, unscaled emissions, the variable typically used in academic literature, is correlated with stock returns but emissions intensity (emissions scaled by firm size), a more commonly-used measure in practice, is not. Second, 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 measures such as sales, suggesting that prior inferences merely capture the well-known association between returns and operating performance. Consistent with this assertion, the associations between emissions and returns disappear after accounting for firm size, industry clustering, and vendor estimation. Investors might want to be cautious about assuming emissions are priced by equity markets.

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? (May 13, 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
1,735
Abstract Views
5,217
rank
15,010
PlumX Metrics