This study provides evidence on the existence of a negative greenium, i.e. a risk premium related to the greenness of a firm, based on European individual stock returns. We define a priced ‘greenness and transparency’ factor based on companies’ greenhouse gas emissions and the quality of their environmental disclosures, and show that what is priced by the market is the combination of environmental performance and environmental transparency. Based on this factor, we offer a tool to assess the exposure of a portfolio to the risk associated with the low-carbon transition, and hedge against it. We estimate that in a stressed scenario where greener and more transparent firms very much outperform brown stocks, there would be losses at the global level, including for European large banks, should investors fail to price climate-transition risks. These results call for the introduction of climate stress tests for systemically important financial institutions.

Alessi, L., Ossola, E., Panzica, R. (2021). What greenium matters in the stock market? The role of greenhouse gas emissions and environmental disclosures. JOURNAL OF FINANCIAL STABILITY, 54(June 2021) [10.1016/j.jfs.2021.100869].

What greenium matters in the stock market? The role of greenhouse gas emissions and environmental disclosures

Ossola, E;
2021

Abstract

This study provides evidence on the existence of a negative greenium, i.e. a risk premium related to the greenness of a firm, based on European individual stock returns. We define a priced ‘greenness and transparency’ factor based on companies’ greenhouse gas emissions and the quality of their environmental disclosures, and show that what is priced by the market is the combination of environmental performance and environmental transparency. Based on this factor, we offer a tool to assess the exposure of a portfolio to the risk associated with the low-carbon transition, and hedge against it. We estimate that in a stressed scenario where greener and more transparent firms very much outperform brown stocks, there would be losses at the global level, including for European large banks, should investors fail to price climate-transition risks. These results call for the introduction of climate stress tests for systemically important financial institutions.
Articolo in rivista - Articolo scientifico
Asset pricing; Climate risk; Environmental disclosure; Factor models; Stress test;
English
Alessi, L., Ossola, E., Panzica, R. (2021). What greenium matters in the stock market? The role of greenhouse gas emissions and environmental disclosures. JOURNAL OF FINANCIAL STABILITY, 54(June 2021) [10.1016/j.jfs.2021.100869].
Alessi, L; Ossola, E; Panzica, R
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/362690
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