Reevaluating the carbon premium: Evidence of green outperformance

Abstract

The carbon premium refers to the excess returns of brown firms over their green counterparts. Our findings provide robust evidence supporting a negative carbon premium in the US based on a sample with more than 3,500 publicly listed firms from 2007 to 2023, indicating that green firms tend to outperform brown firms. The key findings carry over to the global sample with more than 10,000 firms across 90 countries. We show how this conclusion is contingent upon several critical factors, including the treatment of unscaled emissions, the inclusion of vendor-estimated emissions, temporal considerations regarding emissions and accounting data, and the empirical framework employed. We demonstrate that those findings are primarily driven by vendor-estimated emissions, and the carbon premium becomes non-significant if we restrict the sample to firms that report their emissions.