Climate Alpha with Predictors also Improving Firm Efficiency

Climate Alpha with Predictors Also Improving Company Efficiency Joshua Kazdin, Katharina Schwaiger, Viktoria-Sophie Wendt, Andrew Ang The Journal of Impact and ESG Investing Nov 2021, 2 (2) 35-56; DOI: 10.3905/jesg.2021.1.030

Posted: 16 Aug 2021 Last revised: 13 Jan 2022

See all articles by Joshua Kazdin

Joshua Kazdin

BlackRock, Inc - San Francisco

Katharina Schwaiger

BlackRock, Inc

Viktoria-Sophie Wendt

BlackRock, Inc - London

Andrew Ang

BlackRock, Inc

Date Written: July 15, 2021

Abstract

Characteristics of companies associated with climate change predict excess equity returns. We show that firms with lower carbon emission intensities—with carbon emissions being a key component of the Paris Accord—have high excess returns. We present evidence that firms with lower carbon emissions have higher productivity, and that the lower carbon intensities may reflect greater firm efficiencies. A portfolio of firms with a higher proportion of LEED certified buildings also exhibits high excess returns. Such companies also contemporaneously exhibit higher return on assets. Portfolios constructed with the carbon emission intensities and the LEED certified buildings signals are only weakly correlated to a traditional quality factor. We discuss how climate change themed measures of firm efficiency may drive value for sustainably focused investors.

Suggested Citation

Kazdin, Joshua and Schwaiger, Katharina and Wendt, Viktoria-Sophie and Ang, Andrew, Climate Alpha with Predictors also Improving Firm Efficiency (July 15, 2021). Climate Alpha with Predictors Also Improving Company Efficiency Joshua Kazdin, Katharina Schwaiger, Viktoria-Sophie Wendt, Andrew Ang The Journal of Impact and ESG Investing Nov 2021, 2 (2) 35-56; DOI: 10.3905/jesg.2021.1.030, Available at SSRN: https://ssrn.com/abstract=3889640 or http://dx.doi.org/10.2139/ssrn.3889640

Joshua Kazdin

BlackRock, Inc - San Francisco ( email )

400 Howard Street
San Francisco, CA 94105
United States

Katharina Schwaiger

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Viktoria-Sophie Wendt (Contact Author)

BlackRock, Inc - London ( email )

Drapers Gardens
12 Throgmorton Ave
London, EC2N 2DL
United Kingdom

Andrew Ang

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

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

Paper statistics

Abstract Views
1,044
PlumX Metrics