Science-based target initiative and the cross-section of returns

Petter Dahlström, Hans Lööf, Maziar Sahamkhadam and Andreas Stephan

Chapter 14 in Handbook of ESG Investing, 2026, pp 361-379 from Edward Elgar Publishing

Abstract: This chapter provides evidence that public commitment disclosures on reduced carbon-emission targets are priced into stock returns. Using a sample of 757 international stocks committed to the Science-based Targets initiative (SBTi), together with a control group of 3,610 non-committed peers, we construct an SBTi risk factor as a long–short portfolio (committed minus non-committed). Our analysis suggests the existence of a positive SBTi transition premium, which is not captured by classical Fama–French multi-factor models. Second-pass regressions indicate that the SBTi characteristic drives this transition premium, while the systematic SBTi risk premium is not significant. This finding differs from previous evidence on ESG, which points to a negative risk premium but no significant firm-level characteristic effect on stock prices.

Keywords: Risk premium; Fama-MacBeth; Carbon emission; Emission disclosure; SBTi (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035322770
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