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Are Carbon Emissions Associated with Stock Returns?

An influential emerging literature, led by Bolton and Kacperczyk (2021a), documents strong correlations between unscaled raw emissions and both stock returns and operating performance. We re-examine that data, using a sample of 2,729 U.S. firms from 2005-2019, and conclude that the associations between unscaled emissions and both stock returns and operating performance disappear once we account for firm size, industry clustering of standard errors, and vendor-estimated versus firm-disclosed emissions, both in the U.S. sample and in Europe. Investors might want to be cautious about assuming that carbon emissions are priced by equity markets.