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Are carbon emissions associated with stock returns?

Aswani, Jitendra, Raghunandan, Aneesh ORCID: 0000-0003-0443-4984 and Rajgopal, Shivaram (2023) Are carbon emissions associated with stock returns? Review of Finance. ISSN 1572-3097

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Identification Number: 10.1093/rof/rfad013


An influential emerging literature documents strong correlations between carbon emissions and stock returns. We reexamine that data and conclude that these associations are driven by two factors. First, stock returns are correlated only with unscaled emissions estimated by the data vendor, but not with unscaled emissions actually disclosed by firms. Vendor-estimated emissions systematically differ from firm-disclosed emissions and are highly correlated with financial fundamentals, suggesting that prior findings primarily capture the association between such fundamentals and returns. Second, unscaled emissions, the variable typically used in academic literature, is correlated with stock returns but emissions intensity (emissions scaled by firm size), an equally important measure used in practice, is not. While unscaled emissions represent an important metric for society, we argue that, for individual firms, emissions intensity is an appropriate measurement choice to assess carbon performance. The associations between emissions and returns disappear after accounting for either of the issues above.

Item Type: Article
Official URL:
Additional Information: © 2023 The Author.
Divisions: Accounting
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
H Social Sciences > HG Finance
JEL classification: D - Microeconomics > D6 - Welfare Economics > D62 - Externalities
G - Financial Economics > G2 - Financial Institutions and Services > G23 - Pension Funds; Other Private Financial Institutions
G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General
M - Business Administration and Business Economics; Marketing; Accounting > M1 - Business Administration > M14 - Corporate Culture; Social Responsibility
Date Deposited: 08 Mar 2023 15:00
Last Modified: 12 May 2023 23:20

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