There’s a hidden 'pollution bonus' in stock returns that you can’t even see if you’re just looking at how much a company actually pollutes.
March 20, 2026
Original Paper
Characteristics-Driven Carbon Beta: What Do Investors Really Price?
SSRN · 6308738
The Takeaway
Investors are often told that carbon footprints are the key metric for climate risk, but this paper reveals the market has already moved on. Stock prices are now driven by a sophisticated mix of news, controversies, and commitments that predict future decarbonization years before it shows up in the data.
From the abstract
The existence of a carbon premium remains debated, with conflicting evidence attributed to incomplete, noisy, or backward-looking data. We address this measurement challenge by introducing a dynamic, characteristics-driven carbon beta that conditions transition risk exposure on observable firm characteristics and market sentiment. Decomposing this measure for U.S. and European equities, we show that transition risk is anchored by historical Scope 1 emissions, yet is significantly reshaped by pub