The Equity Value Relevance of Carbon Emissions

Handbook of Business and Climate Change (Edward Elgar Publishing)

Rotman School of Management Working Paper No. 4148960

23 Pages Posted: 20 Jul 2022

See all articles by Peter Clarkson

Peter Clarkson

University of Queensland - Business School; Simon Fraser University (SFU) - Beedie School of Business; Financial Research Network (FIRN)

Jody Grewal

Joseph L. Rotman School of Management - University of Toronto

Gordon D. Richardson

University of Toronto - Rotman School of Management

Date Written: June 28, 2022

Abstract

This chapter presents a selected review of studies that speak to the two related questions of whether capital markets view a firm’s carbon emissions as value relevant and if so, the importance of mandated carbon disclosure in facilitating investors’ assessment. The empirical literature consistently documents an inverse relation between the volume of carbon emissions and firm value, suggesting that markets assess a latent carbon liability commensurate with the firm’s carbon emissions. Importantly, the more recent literature confirms significant benefits to mandated carbon emissions disclosures, largely related to the enhanced ability to benchmark a firm’s carbon performance relative to its industry or sector peers. These studies reveal that the assessed latent carbon liability is related to a firm’s relative carbon intensity rank and that both internal discovery and external pressure effects resulting from enhanced benchmarking, lead to reductions in carbon emissions.

Keywords: Value relevance, greenhouse gas emissions, carbon liability, mandatory carbon reporting

Suggested Citation

Clarkson, Peter and Grewal, Jyothika and Richardson, Gordon D., The Equity Value Relevance of Carbon Emissions (June 28, 2022). Handbook of Business and Climate Change (Edward Elgar Publishing), Rotman School of Management Working Paper No. 4148960, Available at SSRN: https://ssrn.com/abstract=4148960 or http://dx.doi.org/10.2139/ssrn.4148960

Peter Clarkson

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Simon Fraser University (SFU) - Beedie School of Business ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Jyothika Grewal (Contact Author)

Joseph L. Rotman School of Management - University of Toronto ( email )

105 St. George Street
Toronto, Ontario M5J 2Z6
Canada
6172060366 (Phone)

HOME PAGE: http://https://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Grewal

Gordon D. Richardson

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-946-8601 (Phone)
416-971-3048 (Fax)

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