Does the stock market provide enough incentives for companies to drive carbon reduction behaviour?

Abstract

This study observes abnormal returns of stock prices after companies announced the establishment of wastewater and waste heat recovery systems in East Asia from 2000 to 2018. The capital expenditure on the wastewater and waste heat recovery system and the expected impact on revenue are also considered, and the stock market is analyzed to verify whether there is an additional evaluation after the company carries out such carbon emission reduction activity. The study finds that after more than a decade of technological advancement and promoting carbon reduction behaviours, the market has shown more positive reactions to carbon reduction measures, such as wastewater and waste heat recovery systems. However, the additional positive reaction in the markets of developing countries is lower than in developed countries. For developing countries desiring domestic manufacturers to adopt more carbon emission reduction activities, the government may need to offer more policy incentives, which will encourage investors in the market to support manufacturers in actively investing in carbon reduction measures. Certainly, manufacturers will be more motivated to implement or cooperate with voluntary carbon reduction measures. In addition, this study does not consider the possible impact of carbon rights trading and carbon fees on improving manufacturers' active treatment of wastewater and waste heat recovery, which will be a direction worthy of future research.