Carbon Emissions Announcements and Market Returns

Abstract

The paper investigates the impact of carbon emissions on stock price returns of European listed firms. This relationship is assessed across all three emissions scopes, as well as using expectations to detect if future emissions impact contemporary returns. Our findings show that firms with higher expected future emissions deliver lower contemporary returns after controlling for market capitalization, profit and other known return predictors. This result is statistically significant in the post Paris Agreement period for two- to three-year expectations of Scope 2 emissions. However, there is marginal to no significant negative relationship between current emissions and current returns. Overall, the results suggest that more environment-minded investors look further ahead and would expect lower returns from a polluting firm compared to a firm with no carbon emissions after the Paris Agreement.