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Science-based emission targets and risk-adjusted portfolio return: An analysis using global SBTi-validated stocks

Author

Listed:
  • Dahlström, Petter

    (Royal Institute of Technology)

  • Lööf, Hans

    (Royal Institute of Technology)

  • Sahamkhadam, Maziar

    (Linnaeus University)

  • Stephan, Andreas

    (Linnaeus University)

  • Lu, Emma Rui

    (Royal Institute of Technology)

Abstract

This paper investigates the financial importance of voluntarily disclosing climate commitments and independent expert-validated action plans. We construct portfolios of 1,518 global stocks of firms that have set science-based (SBTi) emission targets in line with the goals of the Paris Agreement. Coarsened exact matching is used to create benchmark portfolios of otherwise similar global stocks but without expert-validated emission targets. Using the five-factor Fama-French model, the results show positive and statistically significant larger risk-adjusted excess returns for the SBTi portfolios in the post-SBTi validation period. This finding is more pronounced for stocks from high CO2 emission industries as well as for stocks of firms with CO2 emissions above the industry average. Overall, the results support the view that investors should prefer a portfolio of SBTi-validated stocks also since it carries lower climate-related risks.

Suggested Citation

  • Dahlström, Petter & Lööf, Hans & Sahamkhadam, Maziar & Stephan, Andreas & Lu, Emma Rui, 2023. "Science-based emission targets and risk-adjusted portfolio return: An analysis using global SBTi-validated stocks," Working Paper Series in Economics and Institutions of Innovation 492, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    • Handle: RePEc:hhs:cesisp:0492
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    References listed on IDEAS

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    More about this item

    Keywords

    Risk adjusted return; carbon emission; emission disclosure; Fama French; SBTi;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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