Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/250161 
Year of Publication: 
2021
Series/Report no.: 
JRC Working Papers in Economics and Finance No. 2021/13
Publisher: 
European Commission, Ispra
Abstract: 
This paper studies the evolution of the greenium, i.e. a risk premium linked to firms' greenness and environmental transparency, based on individual stock returns. We estimate an asset pricing model with time-varying risk premia, where the greenium is associated to a priced 'greenness and transparency' factor, which considers both companies' greenhouse gas emissions and the quality of their environmental disclosures. We show that investors in the European equity market tend to accept lower returns, ceteris paribus, to hold greener and more transparent assets when the shift of the economy towards low-carbon becomes more credible. This happened after the Paris Agreement, the first Global Climate Strike and the announcement of the EU Green Deal. Signals going in the opposite direction, such as the US withdrawal from the Paris Agreement, increasing fossil fuel prices and more bad news about climate change, are associated with increases in the greenium.
Subjects: 
Climate risk
environmental disclosure
conditional factor models
asset pricing
JEL: 
G01
G11
G12
Q01
Document Type: 
Working Paper

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