How does carbon emissions impact stock prices: Evidence from the UK stock market

Abstract

We investigate the relationship between stock returns and firm’s carbon emissions for the cross-section of UK companies, and test whether a carbon risk premium exists. We obtain emission data, monthly stock return data, and various control variables from UK companies from 2011 to 2021. Our results suggest that stocks with high levels of unscaled emissions earn on average lower returns when controlling for various return predictors. When using emissions growth or carbon intensity, our results suggest that emissions do not impact stock returns. Our paper aims to increase understanding of the relationship between a company’s carbon emissions and stock returns and contribute to the growing field of climate finance