Discussion paper

DP14568 Do Investors Care about Carbon Risk?

This paper explores whether carbon emissions affect the cross-section of U.S. stock returns. We find that stocks of firms with higher total CO2 emissions (and changes in emissions) earn higher returns, after controlling for size, book-to-market, momentum, and other factors that predict returns. We cannot explain this carbon premium through differences in unexpected profitability or other known risk factors. We also find that institutional investors implement exclusionary screening based on direct emission intensity in a few salient industries. Overall, our results are consistent with an interpretation that investors are already demanding compensation for their exposure to carbon emission risk.


Bolton, P and M Kacperczyk (2020), ‘DP14568 Do Investors Care about Carbon Risk?‘, CEPR Discussion Paper No. 14568. CEPR Press, Paris & London. https://cepr.org/publications/dp14568