Environmental Policies on the Systematic Risk of Critical Metals Companies

Abstract

Fossil fuels drive global warming, necessitating their mitigation. Our proposition suggests that environmental policies will drive demand for critical metals, raising their systematic risk. Using Bayesian structural time series, we analyze the impact of the Paris and Dubai Accords on the financial betas of companies producing these metals. Major copper and lithium companies experienced increased systematic risk following the agreements, favoring companies with higher market capitalization. Therefore, hedging of these assets should be considered in the future.

Keywords: Systematic risk, climate change, Copper, Lithium, Cobalt, Nickel