ESG disclosure, investor awareness, and carbon risk pricing: Evidence from the Chinese market

Sirui Han, Haitian Lu and Hao Wu

International Review of Law and Economics, 2024, vol. 80, issue C

Abstract: This article examines the relationship between carbon disclosure, equity returns, and investor awareness in the Chinese A-share market. The study uses firm-disclosed and proprietary vendor-estimated carbon emissions data for A-share listed companies and investigates whether the presentation of carbon risks affects the cross-sectional equity returns of Chinese domestically listed firms. The results indicate that main-board listed companies with higher unscaled carbon emissions tend to earn higher equity returns, even after controlling for factors such as size, book-to-market ratio, momentum, and firm characteristics. Moreover, the observed carbon risk premium associated with carbon-emitting companies decreases as investor awareness improves following the launch of policy agendas promoting carbon neutrality in China. These findings support the research hypothesis that investors seek higher returns for equity investments in carbon-emission-intensive companies to compensate for the higher carbon risks associated with such firms. The study also highlights the importance of carbon disclosure, as companies generally disclose their ESG information when they have improved performance in reducing their carbon emissions.

Keywords: Carbon emissions ∙ Climate change ∙ Stock returns ∙ Carbon Risk Premium ∙ China (search for similar items in EconPapers)
JEL-codes: D62 G12 G23 G30 H23 M14 Q51 Q54 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:irlaec:v:80:y:2024:i:c:s0144818824000371

DOI: 10.1016/j.irle.2024.106217

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