Abstract
This study explores U.S. public companies’ reactions to scientific announcements by the IPCC (Intergovernmental Panel on Climate Change) with respect to updated climate change knowledge and how it affects their stock valuations, given their carbon emission/environmental outlooks. Based on a sample of total daily returns collected for 10 industry indexes from the S&P 500 Index over the period 1990–2014, and using an event study approach, we analyze the connection between IPCC assessment report announcements and firms’ returns to evaluate panel data models. We found that various sectors, regardless of their carbon profiles, react abnormally to IPCC report announcements without remarkable long-run cumulative effects. The implications of these results are that there is no clear violation of the efficient markets hypothesis, yet short-term profits may be gained. Furthermore, the market still reacts to new scientific announcements, even though 24 years have passed since the first IPCC report. In addition, there is a negative relationship for low and medium carbon-intensive industries, especially in the short term.
Highlights
The importance of global warming on the economic and political agenda was highlighted by the United Nations Climate Change Conference (COP 21) in 2015, where most nations committed themselves to reduce greenhouse gases (GHG)
Such findings will be of interest to mutual funds with long-term strategic investments in green or decarbonized indexes, which will benefit in the case of new scientific announcements, given that carbon risk is still underpriced by the market
The first hypothesis of our study explored the difference in market reactions to Intergovernmenta1l1 of Panel on Climate Change (IPCC) assessment announcements and announcements on changes in the regulatory framework
Summary
The importance of global warming on the economic and political agenda was highlighted by the United Nations Climate Change Conference (COP 21) in 2015, where most nations committed themselves to reduce greenhouse gases (GHG) (namely 189 countries, representing 96% of global GHG emissions). If the results of such climate shock events show a negative impact on carbon-emitting companies, this would reveal the prevalence of stranded assets (e.g., oil reserves on the balance sheets), in the fossil fuels sector and in the non-fossils fuel sector, which is dependent on current carbon-intensive technologies, such as the manufacturing and electricity sectors Such findings will be of interest to mutual funds with long-term strategic investments in green or decarbonized indexes, which will benefit in the case of new (unexpected) scientific announcements, given that carbon risk is still underpriced by the market.
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