A1861
Title: Now you see it, now you do not: Pricing of climate risk and confusion in stock markets
Authors: Luca De Angelis - University of Bologna (Italy) [presenting]
Irene Monasterolo - EDHEC Business School Nice (France)
Abstract: Achieving the climate targets requires both massive new low-carbon investments and divestments from carbon-intensive assets. There is a growing investors' appetite for sustainable assets (e.g. ESG, green bonds), but the lack of standardized classification generates uncertainty on the definition of what is ``green''. Indeed, the existing literature does not agree on whether markets react to climate risk and whether and how they price green/brown factors. This represents the main knowledge gap for investors and financial regulators. We investigate how European stock markets price climate risk by evaluating different taxonomies for defining ``green'' and ``brown'' portfolios. In particular, we compare more traditional taxonomies, such as industry-based or greenhouse emissions disclosure, with more sustainability-oriented taxonomies, such as ESG, Climate Policy Relevant Sectors (CPRS Granular), and the EU taxonomy. Results confirm that different taxonomies lead to very different evidence on asset financial performance.
