If global warming is to stay below 2°C, there are four risks of assets stranding. First, substantial fossil fuel reserves will be stranded at the end of the fossil era. Second, this will be true for exploration capital too. Third, unanticipated changes in present or expected future climate...

This study examines the relationship between carbon risk and stock returns in Korea. We find that a firm’s carbon intensity is a significant determinant of its cross-sectional stock returns. Stocks with high exposure to carbon risk exhibit higher average returns. The abnormal return associated...

We develop quantitative methods to support financial product analysis-redesign required by the Carbon Equivalence Principle (CEP) to achieve financial net-zero and thus carbon net-negative positions. We then apply the CEP analysis-redesign to project finance for power generation across a range...

We study whether corporate greenhouse gas (GHG) emissions have an effect on firm equity risks. Based on 8,023 firm-year observations from a sample of European firms over the period from 2010 to 2020, our results imply that GHG emissions are relevant for investors’ equity risk assessments....

The way in which climate policy and climate risks are currently accounted for in financial and real investment decisions is inadequate. The paper demonstrates weaknesses in methods presently used and proposes an alternative that aims to bridge the duration gap between climate policy modeling and...

Absent mandatory reporting, and although many companies report their carbon emissions, much of the emissions data are estimated by data providers. As we evaluate the forward-looking carbon scores from several popular data providers, we find no evidence that these scores predict future changes in...

We introduce the Carbon Equivalence Principle that requires carbon-equivalent flows enabled, or caused, by a financial product to have equal status with cashflows. This reveals that existing financial products already have environmental impact and so are ESG-linked, without the need for any...

We study the effects of carbon risk on equity prices in the US and Europe using disclosed carbon intensity data, and find a negative effect on the cross section of returns and a negative carbon premium. Examining fund flows, we find that institutional investors have an aversion to...

The relative equity pricing of more climate-friendly ("green") versus less climate-friendly ("brown") companies is an open question in climate finance. Previous research comes to conflicting conclusions, documenting either a "carbon premium" with brown stocks yielding higher returns, or the...

The aim of this paper is to study the performance of carbon-based portfolios when all emissions scopes are accounted for. We formalize low-carbon portfolio strategies by integrating a carbon intensity penalty to a constrained mean-variance optimization framework. To do so, we resort to direct...