The pricing of climate transition risk in Europe’s equity market

Philippe Loyson, Rianne Luijendijk and Sweder van Wijnbergen

Working Papers from DNB

Abstract: We assess whether climate transition risk is priced in Europe’s equity market by analysing relative equity returns of high versus low CO2-emitting firms. We use a panel data set covering firmspecific carbon emissions of 1555 European companies over the period 2005-2019. We add to the existing literature by addressing problems in carbon data and by using various econometric methods ranging from panel data analysis to synthetic control methods. Fama-French style panel regressions at both the individual firm level as well as portfolio level suggest that carbon intensity is negatively related to stock returns. Treatment effect models, however, provide some evidence for increased pricing of climate transition risk after the Paris Agreement.

Keywords: Climate Change; Carbon Emissions Intensity; Paris Agreement; Transition Risk Premia (search for similar items in EconPapers)
JEL-codes: G12 Q54 (search for similar items in EconPapers)
Date: 2023-08
New Economics Papers: this item is included in nep-ene and nep-env
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Citations: View citations in EconPapers (1)

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