 What greenium matters in the stock market? The role of greenhouse gas emissions and environmental disclosuresLucia Alessi, Elisa Ossola () and Roberto Panzica Journal of Financial Stability, 2021, vol. 54, issue C Abstract: This study provides evidence on the existence of a negative greenium, i.e. a risk premium related to the greenness of a firm, 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, and show that what is priced by the market is the combination of environmental performance and environmental transparency. 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) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:54:y:2021:i:c:s1572308921000280 DOI: 10.1016/j.jfs.2021.100869 Access Statistics for this article Journal of Financial Stability is currently edited by I. Hasan, W. C. Hunter and G. G. Kaufman More articles in Journal of Financial Stability from Elsevier |
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