Do corporate carbon emissions affect risk and capital costs?

Adam G. Arian and John Sands

International Review of Economics & Finance, 2024, vol. 93, issue PA, 1363-1377

Abstract: This study explores the impact of corporate carbon emissions on idiosyncratic risk and capital costs. Leveraging a dataset comprising 1016 company-year observations from Australian-listed companies over the period 2007 to 2020, our panel regression analysis reveals significant associations. We find that companies with higher carbon emissions experience elevated idiosyncratic risk, contributing to increased capital costs in both debt and equity markets. Our results remain robust after using alternative model specifications, accounting for the diverse nature of corporate carbon performance among industries, shaped by unique industrial factors. These results highlight the significance of carbon emissions pricing within financial markets and emphasize the importance of standardized corporate carbon disclosure in enhancing market efficiency, facilitating more accurate valuation, and guiding resource allocation in the broader economy.

Keywords: Corporate carbon emissions; Corporate risk; Emissions intensity; Cost of capital (COC); Market efficiency (search for similar items in EconPapers)
JEL-codes: C12 M41 M48 Q20 Q56 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:93:y:2024:i:pa:p:1363-1377

DOI: 10.1016/j.iref.2024.04.018

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