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ESG disclosure, investor awareness, and carbon risk pricing: Evidence from the Chinese market

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Listed:
  • Han, Sirui
  • Lu, Haitian
  • Wu, Hao

Abstract

This article examines the relationship between carbon disclosure, equity returns, and investor awareness in the Chinese A-share market. The study uses firm-disclosed and proprietary vendor-estimated carbon emissions data for A-share listed companies and investigates whether the presentation of carbon risks affects the cross-sectional equity returns of Chinese domestically listed firms. The results indicate that main-board listed companies with higher unscaled carbon emissions tend to earn higher equity returns, even after controlling for factors such as size, book-to-market ratio, momentum, and firm characteristics. Moreover, the observed carbon risk premium associated with carbon-emitting companies decreases as investor awareness improves following the launch of policy agendas promoting carbon neutrality in China. These findings support the research hypothesis that investors seek higher returns for equity investments in carbon-emission-intensive companies to compensate for the higher carbon risks associated with such firms. The study also highlights the importance of carbon disclosure, as companies generally disclose their ESG information when they have improved performance in reducing their carbon emissions.

Suggested Citation

  • Han, Sirui & Lu, Haitian & Wu, Hao, 2024. "ESG disclosure, investor awareness, and carbon risk pricing: Evidence from the Chinese market," International Review of Law and Economics, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:irlaec:v:80:y:2024:i:c:s0144818824000371
    DOI: 10.1016/j.irle.2024.106217
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    Keywords

    ;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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