Do investors care about carbon emissions under the European Environmental Policy?

Abstract

We explore the extent to which cross-sectional differences in carbon dioxide emissions matter for future valuations of European firms regulated under the European Union Trading Scheme (EU ETS). Counterintuitively, we find that firm-level emissions share a robust concave relationship with future market valuations. Initially, market valuations increase in emissions potentially because emissions are considered essential for normal production processes; however, the valuation premium decreases and becomes negative beyond a threshold of emissions due to looming regulatory and transition risks. Firms in the lower quartile of emissions trade at an average premium of 2.42%, against a 20.78% discount in the upper quartile (the peak is 3.85%). Importantly, the concave relationship obtains only in smaller firms with lower analyst coverage and lower institutional ownership, and the predictive power of emissions is limited to firms with no reported investments in clean technology. Therefore, policymakers might consider promoting the development and diffusion of green technologies.

Which institutional investors drive corporate sustainability? A systematic literature review

“…This study addressed a systematic review of archival research on the influence of IO type and nature as IO heterogeneity on corporate sustainability. Classic agency theory assumes that the preferences of IO are homogeneous and are connected with a sole demand for financial instead of environmental and social sustainability issues (Basse Mama & Mandaroux, 2022; Wahba, 2010). Our research overcomes this assumption and assumes that specific characteristics of IO may lead to a positive influence on corporate sustainability based on ESG/CSR performance and reporting, and vice versa.…”

“…First, in contrast to non‐institutional ownership (e.g., private investors), we assume that IO has more experience and resources and thus influences corporate strategies. Many institutions are active owners who monitor the boards of directors of investment firms and pressure management to increase corporate sustainability efforts (see, e.g., Basse Mama & Mandaroux, 2022; Wahba, 2010). Most of these institutions have a very complex portfolio of firms from an international perspective.…”

“…To lower the risk of the symbolic use of corporate sustainability for self‐impression management, an appropriate quality of corporate governance is necessary (Kim et al, 2020). Also to board governance, institutional investors should lead to better corporate governance quality as active monitors (Basse Mama & Mandaroux, 2022; Wahba, 2010).…”

“…As institutions may change the sustainability preferences of the board of directors, a great impact on sustainable board composition may be the relevant channel, for example, based on board gender diversity, sustainable executive compensation, or sustainability expertise.6 | SUMMARYThis study addressed a systematic review of archival research on the influence of IO type and nature as IO heterogeneity on corporate sustainability. Classic agency theory assumes that the preferences of IO are homogeneous and are connected with a sole demand for financial instead of environmental and social sustainability issues(Basse Mama & Mandaroux, 2022;Wahba, 2010). Our research overcomes this assumption and assumes that specific characteristics of IO may lead to a positive influence on corporate sustainability based on ESG/CSR performance and reporting, and vice versa.…”

Executive compensation, environmental performance, and sustainable banking: The moderating effect of governance mechanisms

“…In view of this, several central banks and other financial regulators have recommended banks to assess their contribution to environmental and climate‐related risks (Agliardi & Agliardi, 2021; Lamperti et al, 2021; Monasterolo et al, 2021). In particular, environmentally responsible behaviors such as green technologies, green products, green finance, and green strategies are increasingly being requested by firms' stakeholders (Atif et al, 2020; Basse Mama & Mandaroux, 2021; Chithambo et al, 2021; Dögl & Behnam, 2015; Gerged et al, 2021; Lu & Herremans, 2019; Park, 2018; Singh et al, 2021; Zameer et al, 2021).…”