The Greenium matters: greenhouse gas emissions, environmental disclosures, and stock prices

Lucia Alessi, Elisa Ossola () and Roberto Panzica ()
Additional contact information
Roberto Panzica: European Commission, https://joint-research-centre.ec.europa.eu/index_en

No 2019-12, JRC Working Papers in Economics and Finance from Joint Research Centre, European Commission

Abstract: This study provides evidence on the existence of a negative Greenium, i.e. a risk premium linked to firms' greenness and environmental transparency, based on European individual stock returns. We define a priced `greenness and transparency' factor based on companies' greenhouse gas emissions and the quality of their environmental disclosures. Based on this factor, we offer a tool to assess the exposure of a portfolio to the risk associated with the low-carbon transition, and hedge against it. We estimate that in a stressed scenario where greener and more transparent firms very much outperform brown stocks, there would be losses at the global level, including for European large banks, should investors fail to price climate-transition risks. These results call for the introduction of climate stress tests for systemically important financial institutions.

Keywords: climate risk; environmental disclosure; factor models; asset pricing; stress test (search for similar items in EconPapers)
JEL-codes: G01 G11 G12 Q01 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2019-07, Revised 2020-04
New Economics Papers: this item is included in nep-ene, nep-env, nep-hme and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published by Publications office of the European Union, 2019

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https://publications.jrc.ec.europa.eu/repository/handle/JRC120506 (application/pdf)

Related works:
Working Paper: The Greenium matters: greenhouse gas emissions, environmental disclosures, and stock prices (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:jrs:wpaper:201912

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