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The pricing of climate transition risk in Europe’s equity market

Author

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  • Philippe Loyson
  • Rianne Luijendijk
  • Sweder van Wijnbergen

Abstract

We assess whether climate transition risk is priced in Europe’s equity market by analysing relative equity returns of high versus low CO2-emitting firms. We use a panel data set covering firmspecific carbon emissions of 1555 European companies over the period 2005-2019. We add to the existing literature by addressing problems in carbon data and by using various econometric methods ranging from panel data analysis to synthetic control methods. Fama-French style panel regressions at both the individual firm level as well as portfolio level suggest that carbon intensity is negatively related to stock returns. Treatment effect models, however, provide some evidence for increased pricing of climate transition risk after the Paris Agreement.

Suggested Citation

  • Philippe Loyson & Rianne Luijendijk & Sweder van Wijnbergen, 2023. "The pricing of climate transition risk in Europe’s equity market," Working Papers 788, DNB.
    • Handle: RePEc:dnb:dnbwpp:788
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    Cited by:

    1. Dirk Broeders & Marleen de Jonge & David Rijsbergen, 2024. "The European Carbon Bond Premium," Working Papers 798, DNB.

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    More about this item

    Keywords

    Climate Change; Carbon Emissions Intensity; Paris Agreement; Transition Risk Premia;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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