Do Investors Care about Carbon Risk? A Global Perspective

Companies face significant carbon-transition risk as the global economy works to combat climate change. This paper studies the market-based premium associated with the carbon-transition risk globally and finds that firms with more carbon-intense business models earn higher returns in recent years. The carbon return is impacted by climate-aware institutional flows, is magnified following heightened climate policy risk, and is lower in countries with more institutional presence, higher levels of development, less physical risk, and better governance. The pricing the carbon-transition risk is well under-way globally, but further global regulatory coordination is required to mitigate the externalities of carbon emissions.