Market-Based Green Firms

Konrad Adler, Oliver Rehbein, Matthias Reiner and Jing Zeng

No 20086, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper proposes a simple but effective tool to measure firms' exposure to climate risk: the market. We first develop a model showing that abnormal stock returns around significant climate policy events measure a firm's exposure to climate risk. On this basis, we create market-based firm greenness measures for around 36,000 international firms based on abnormal returns around UN climate conferences. The resulting measure creates intuitive rankings of sector-level climate-risk exposure and is correlated with, but distinct from existing measures. At the firm level, market-based greenness is associated with lower present and future carbon emissions. Green firms are more likely to file green patents, have lower stock-price volatility, and tend to be financially more robust. At the country level, market-based greenness is associated with lower emission intensity and a larger share of renewable energy.

Date: 2025-03
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