IDEAS home Printed from https://ideas.repec.org/a/taf/jsustf/v11y2021i1p1-26.html
   My bibliography  Save this article

The impact of carbon risk on stock returns: evidence from the European electric utilities

Author

Listed:
  • Enrico Bernardini
  • Johnny Di Giampaolo
  • Ivan Faiella
  • Riccardo Poli

Abstract

The decarbonization process has made obsolete the traditional value-creation model of companies operating in the electricity sector, particularly affecting those with a greater share of fossil fuels in their energy mix that have been forced to write down their carbon-intensive activities with a negative impact on operating income, equity and leverage. Institutional investors have a significant exposure to equity and debt of European Electric Utilities: if the transition process towards a low-carbon system is faster than expected, the risk that these weaknesses may spread across the financial system shouldn’t be underestimated. Analyses based on risk-premium factor models show that there was a significant low-carbon premium during the years in which the decarbonization process accelerated; in the period considered, an investment strategy that focused more on low-carbon companies would have delivered higher returns without modifying the overall risk profile.

Suggested Citation

  • Enrico Bernardini & Johnny Di Giampaolo & Ivan Faiella & Riccardo Poli, 2021. "The impact of carbon risk on stock returns: evidence from the European electric utilities," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 11(1), pages 1-26, January.
    • Handle: RePEc:taf:jsustf:v:11:y:2021:i:1:p:1-26
    DOI: 10.1080/20430795.2019.1569445
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/20430795.2019.1569445
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/20430795.2019.1569445?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Siddhartha P. Chakrabarty & Suryadeepto Nag, 2023. "Risk measures and portfolio analysis in the paradigm of climate finance: a review," SN Business & Economics, Springer, vol. 3(3), pages 1-22, March.
    2. Olatunji Abdul Shobande & Joseph Onuche Enemona, 2021. "A Multivariate VAR Model for Evaluating Sustainable Finance and Natural Resource Curse in West Africa: Evidence from Nigeria and Ghana," Sustainability, MDPI, vol. 13(5), pages 1-15, March.
    3. Amedeo Argentiero & Giovanni Bonaccolto & Giulio Pedrini, 2024. "Green finance: Evidence from large portfolios and networks during financial crises and recessions," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(3), pages 2474-2495, May.
    4. Pawel Witkowski & Adam Adamczyk & Slawomir Franek, 2021. "Does Carbon Risk Matter? Evidence of Carbon Premium in EU Energy-Intensive Companies," Energies, MDPI, vol. 14(7), pages 1-18, March.
    5. Reboredo, Juan C. & Ugolini, Andrea, 2022. "Climate transition risk, profitability and stock prices," International Review of Financial Analysis, Elsevier, vol. 83(C).
    6. Namasi G. Sankar & Suryadeepto Nag & Siddhartha P. Chakrabarty & Sankarshan Basu, 2024. "The Carbon Premium: Correlation or Causation? Evidence from S&P 500 Companies," Papers 2401.16455, arXiv.org.
    7. Zanin, Luca, 2023. "A flexible estimation of sectoral portfolio exposure to climate transition risks in the European stock market," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    8. Yevheniia Antoniuk, 2023. "The effect of climate disclosure on stock market performance: Evidence from Norway," Sustainable Development, John Wiley & Sons, Ltd., vol. 31(2), pages 1008-1026, April.
    9. Dirk Broeders & Marleen de Jonge & David Rijsbergen, 2024. "The European Carbon Bond Premium," Working Papers 798, DNB.
    10. Thomas Cauthorn & Christian Klein & Leonard Remme & Bernhard Zwergel, 2023. "Portfolio benefits of taxonomy orientated and renewable European electric utilities," Journal of Asset Management, Palgrave Macmillan, vol. 24(7), pages 558-571, December.
    11. Drudi, Francesco & Moench, Emanuel & Holthausen, Cornelia & Weber, Pierre-François & Ferrucci, Gianluigi & Setzer, Ralph & Adao, Bernardino & Dées, Stéphane & Alogoskoufis, Spyros & Téllez, Mar Delgad, 2021. "Climate change and monetary policy in the euro area," Occasional Paper Series 271, European Central Bank.
    12. Vlad-Cosmin Bulai & Alexandra Horobet & Oana Cristina Popovici & Lucian Belascu & Sofia Adriana Dumitrescu, 2021. "A VaR-Based Methodology for Assessing Carbon Price Risk across European Union Economic Sectors," Energies, MDPI, vol. 14(24), pages 1-21, December.
    13. Campiglio, Emanuele & van der Ploeg, Frederick, 2021. "Macro-Financial Transition Risks in the Fight Against Global Warming," RFF Working Paper Series 21-15, Resources for the Future.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:jsustf:v:11:y:2021:i:1:p:1-26. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/TSFI20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.