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Carbon Returns across the Globe

Author

Listed:
  • SHAOJUN ZHANG

Abstract

The pricing of carbon transition risk is central to the debate on climate‐aware investments. Emissions are tightly linked to sales and are available to investors only with significant lags. The positive carbon return, or brown‐minus‐green return differential, documented in previous studies arises from forward‐looking firm performance information contained in emissions rather than a risk premium in ex ante expected returns. After accounting for the data release lag, carbon returns turn negative in the United States and insignificant globally. Developed markets experience lower carbon returns due to intense climate concern shocks, while countries with stringent climate policies exhibit higher carbon returns.

Suggested Citation

  • Shaojun Zhang, 2025. "Carbon Returns across the Globe," Journal of Finance, American Finance Association, vol. 80(1), pages 615-645, February.
    • Handle: RePEc:bla:jfinan:v:80:y:2025:i:1:p:615-645
    DOI: 10.1111/jofi.13402
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    Cited by:

    1. Daniel Kim & Sébastien Pouget, 2026. "Do carbon emissions affect the cost of capital?," Post-Print hal-05470890, HAL.
    2. Tang, Iengchuo & Dias, Roshanthi & Mo, Di & Tian, Xiao, 2025. "When green turns brown: Green premium revisited," Finance Research Letters, Elsevier, vol. 86(PA).
    3. Wang, Chih-Wei & Lin, Weizheng & Shi, Nina, 2026. "Firm complexity and carbon emissions: Evidence from textual analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 243(C).
    4. Coqueret, Guillaume & Tavin, Bertrand & Zhou, Yuxin, 2026. "Sustainability in commodity markets," Journal of Banking & Finance, Elsevier, vol. 184(C).
    5. Alves, Rómulo & Krüger, Philipp & van Dijk, Mathijs, 2025. "Drawing up the bill: Are ESG ratings related to stock returns around the world?," Journal of Corporate Finance, Elsevier, vol. 93(C).
    6. Hambel, Christoph & van der Sanden, Floor, 2025. "Reevaluating the carbon premium: Evidence of green outperformance," International Review of Financial Analysis, Elsevier, vol. 102(C).
    7. Richard Frankel & S. P. Kothari & Aneesh Raghunandan, 2025. "The economics of ESG disclosure regulation," Review of Accounting Studies, Springer, vol. 30(4), pages 3218-3253, December.
    8. Wang, Wenyi & Liu, Haifei & Wang, Lei & Che, Zhen, 2025. "Networked liquidity risk contagion in high-carbon sectors: The role of multi-agent behavioral constraints," International Review of Financial Analysis, Elsevier, vol. 106(C).
    9. Zhang, Yuanyuan & Ma, Mingze, 2025. "Decarbonization through artificial intelligence innovation: Firm-level evidence from China," Finance Research Letters, Elsevier, vol. 86(PD).
    10. Kiran, Madiha & Alnori, Faisal & Rabbani, Mustafa Raza & Cepni, Oguzhan, 2026. "Going green or losing edge: A global investigation into the role of carbon risk on banks' green investments," Economics Letters, Elsevier, vol. 258(C).
    11. Kim, Daniel & Pouget, Sébastien, 2026. "Do carbon emissions affect the cost of capital? Primary versus secondary corporate bond markets," Journal of Corporate Finance, Elsevier, vol. 97(C).
    12. Ahn, Byung Hyun & Dutta, Sunil & Patatoukas, Panos N., 2025. "Corporate carbon overhang: Valuing corporate exposure to future carbon costs," Energy Economics, Elsevier, vol. 152(C).
    13. Carina Cuculiza & Alok Kumar & Wei Xin & Chendi Zhang, 2026. "Temperature Sensitivity, Mispricing, and Predictable Returns," Management Science, INFORMS, vol. 72(3), pages 1918-1958, March.
    14. Yuan Ding & Daniel X. Zhang & Jessica K. Sun, 2025. "When Responsibility Meets Risk: Firm‐Level Political Risk, GHG Disclosure, and the Moderating Role of Market Complexities," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(6), pages 8329-8349, December.
    15. Bauer, Michael D. & Offner, Eric A. & Rudebusch, Glenn D., 2025. "Green stocks and monetary policy shocks: Evidence from Europe," European Economic Review, Elsevier, vol. 177(C).
    16. Aobdia, Daniel & Köchling, Gerrit & Limbach, Peter & Yoon, Aaron, 2025. "Emissions restatements after the SEC's request for public input on climate-related disclosures: Evidence from carbon disclosure project filings," CFR Working Papers 25-11, University of Cologne, Centre for Financial Research (CFR).
    17. Kakuho Furukawa & Hibiki Ichiue & Noriyuki Shiraki, 2025. "How Does Climate Change Interact with the Financial System?," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 43, pages 61-94, November.
    18. Liang, Hao & Ng, Lilian & Yoon, Aaron, 2025. "Editorial: What have we learned about green and climate finance?," The British Accounting Review, Elsevier, vol. 57(5).
    19. Xu, Weidong & Zhu, Danyu & Gao, Xin & Xing, Lu & Li, Donghui, 2025. "The price of realized extreme climate events in the implied cost of equity capital: International evidence," Journal of Banking & Finance, Elsevier, vol. 180(C).
    20. Wang, Haiying & Luo, Ting & Jiang, Chonghui & Du, Jiangze, 2026. "Which companies are most at low-carbon transition risks? Evidence from ripple effects in multi-order moments," International Review of Financial Analysis, Elsevier, vol. 110(C).
    21. Wang, Qin & Wang, Ying, 2025. "What shapes export competitiveness of home country firms? Host country environmental regulations or labor standards," International Review of Financial Analysis, Elsevier, vol. 103(C).
    22. Hambel, Christoph & van der Ploeg, Frederick, 2025. "Policy transition risk, carbon premiums, and asset prices," Journal of Monetary Economics, Elsevier, vol. 152(C).

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