Asymmetric Market Valuation of Carbon Emissions: Evidence from Real Estate Companies

An increasing number of mainstream finance and accounting studies have been devoted to assess the linkage between carbon emissions and firms’ value. However, a majority of these studies focus on direct carbon-intensive firms or firms from all sectors. No empirical study has examined the impact of carbon disclosure on the performance of real estate sector, which is an indirect carbon-intensive sector. This study aims to fill this gap by examining whether there is a carbon-efficiency premium for real estate companies. Specifically, the linkages between the level of carbon emissions and financial return of international real estate companies are scrutinized. The dataset of Carbon Disclosure Project (CDP) over 2010-2015 was utilised. The results assert that an enhanced financial return is associated with a lower level of carbon emissions, reflecting that there is a carbon-efficiency premium. Further we also found some empirical evidence to support the notion of asymmetric market valuation of carbon emissions. Specifically, market participants only price direct carbon emissions, whilst no comparable is found for indirect carbon emissions. The practical implications of the findings are also discussed.