Corporate Responses to Climate Change and Financial Performance: The Impact of Climate Policy

Andreas Ziegler, Timo Busch (tobusch@ethz.ch) and Volker H. Hoffmann (vhoffmann@ethz.ch)
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Timo Busch: Nachhaltigkeit und Technologie, ETH Zurich, Switzerland
Volker H. Hoffmann: Nachhaltigkeit und Technologie, ETH Zurich, Switzerland

No 09/105, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: This paper examines the relationship between corporate activities to address climate change and stock performance. By separately analyzing the US and European stock markets for different sub-periods, we highlight the impact of the underlying climate policy regime. Methodologically, we compare risk-adjusted returns of stock portfolios comprising corporations that differ in their responses to climate change. In this respect, we apply the flexible Carhart fourfactor model besides the restricted one-factor model based on the Capital Asset Pricing Model (CAPM). While our portfolio analysis shows negative relationships over the entire observation period from 2001 to 2006, we find that a trading strategy, which bought stocks of corporations with a higher level of responses to climate change and sold stocks of corporations with a lower level, led to negative abnormal returns in regions and periods with less ambitious climate policy, but to positive abnormal returns in regions and periods with stringent climate policy.

Keywords: Climate change; Climate policy; Corporate environmental performance; Financial performance; Portfolio analysis; Asset pricing models (search for similar items in EconPapers)
JEL-codes: G11 G12 M14 Q48 Q54 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2009-02
New Economics Papers: this item is included in nep-ene and nep-env
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Citations: View citations in EconPapers (6)

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