How Carbon Risk Is Impacting Stock Returns
(4 min read)
Scientific consensus has long been reached on a link between human activities and climate change. But now investors have taken notice, and in that light they are actively reassessing their portfolios. For example, institutional investors have committed to divesting $11 trillion in assets of fossil fuel companies. This begs the question: how is carbon risk priced by markets? Academics from the University of Augsburg and Queen’s University, Ontario, have tackled this question in their recent paper, “Carbon Risk”.
They conclude that carbon risk is now influencing equity market performance. But their most notable finding is that firms that become greener see equity outperformance. And importantly, carbon risk can now be considered an additional factor for equity investors along with factors like size, value, and momentum.
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