Companies face significant carbon-transition risk as the global economy works to combat climate change. This paper studies the market-based premium associated with the carbon-transition risk in 89 countries from 2010 to 2021 and finds that firms with more carbon-intense business models earn significantly higher future returns. The carbon premium cannot be explained by unexpected earnings surprises or institutional flows. The carbon premium is magnified following increased investment attention and policy risk. Consistent with the public goods view of carbon emissions, the premium is higher for countries with lower income, higher exposure to climate change and less readiness to transition.
Zhang, Shaojun, Do Investors Care about Carbon Risk? A Global Perspective (May 17, 2022).