The Market Reaction to Climate Risk: Evidence from the European Banking Industry

Francesca Battaglia (), Francesco Busato () and Simone Taddeo ()
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Francesca Battaglia: University of Naples Parthenope
Francesco Busato: University of Naples Parthenope
Simone Taddeo: University of Naples Parthenope

Chapter Chapter 1 in Creating Value and Improving Financial Performance, 2023, pp 1-26 from Palgrave Macmillan

Abstract: Abstract The transition to low-fossil-fuel-economy shifts away those companies that are exposed to climate risks. By applying a panel data analysis over a sample of 45 listed European banks, spanning from the period that goes from 2014 to 2020, our findings show that investors, before the introduction of the EU Sustainable Finance Action Plan in 2018, demand higher compensation for banks that include high-carbon-intensive activities, as a hedge of climate change risks. However, when the EU sustainable regulation has been put in place, the correlation between banks’ carbon emissions and returns drops, providing a positive impulse for promoting sustainable investments, prompting the so-called portfolio decarbonisation process.

Keywords: Carbon premium; Climate-transition risk; Stock returns; Climate change; Carbon emission (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:pal:pmschp:978-3-031-24876-4_1

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DOI: 10.1007/978-3-031-24876-4_1

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