Greenhouse Gas Emissions are Important to Investors

Greenhouse Gas Emissions Can Hurt Companies' Stock Value, UC Davis Graduate School of Management Study Finds

01/24/2011 - How much greenhouse gas a company produces has a significant effect on the value of the company's stock, according to a new study by researchers at the University of California, Davis; University of California, Berkeley; and University of Otago in New Zealand.

The greater the carbon emissions, the lower a company's stock, all other factors being equal, the researchers found. The study was led by Paul Griffin, a professor in the UC Davis Graduate School of Management.

Griffin and his colleagues also discovered that markets respond almost immediately when a company reports an event that could affect global climate change, with stock values responding the same day as the disclosure.

"It really does appear to be a valuation factor," Griffin says. "Greenhouse gas emissions are important to investors in assessing companies."

The study was posted recently on the Social Science Research Network, a database of social science research.

The findings bolster the arguments of investor groups, environmental advocates and watchdog organizations that have been seeking greater disclosure of company actions that affect climate change.

Although the U.S. Securities and Exchange Commission does not require all companies to report greenhouse gas emissions, firms are bound by a rule that mandates disclosure of any information material to stock values. Today, about half of large U.S. firms report greenhouse gas emissions through the Carbon Disclosure Project, a British organization representing mostly institutional investors. {continued}