Carbon Productivity and Volatility

This study investigates the relationship between firm-level carbon productivity and volatility. With increasing interest in sustainable investing and inclusion of carbon productivity in financial assessments, we examine whether the market considers firms with high carbon productivity as less risky. Using U.S. firm-level carbon emission data, we find that carbon productivity is negatively associated with total and idiosyncratic volatilities. We also show that this relationship is significant when the binding intergovernmental regulations such as Paris Agreement is active. We use propensity score matching, coarsened exact matching and alternative risk variable tests to show that results are not driven by endogeneity