Handle with Care: Challenges and Opportunities of using Company-Level Emissions Data for Assessing Financial Risks from Climate Change

By now climate change has a substantial impact on financial markets and risks related to it have to be analysed. Besides the physical risk imposed by extreme weather conditions, companies face transition risks as economies are rebuilding on a low-carbon basis. To assess the impact on individual companies reliable data are necessary. Currently, by far most-used data relate to the carbon emissions of firms. By analysing a large data set on company-level carbon emissions we identify several sources of data fault which have to be considered in any data-intensive analysis. We show that year-by-year analysis of company emission consistency is best to find data flaws. Also, we find that economic and carbon data are not perfectly synchronized. Our analysis indicates that the widespread use of winsorizing is not enough to remove data flaws. Also, alternative emission measures do not provide robustness of results as they tend to suffer from the same flaws. As providers update carbon data on an ad-hoc basis, the previous analysis may not be repeated unless the data set on which it was based is saved. Our findings serve as a warning for the reliability of (academic) analysis and highlight the possible impact of bad data quality on algorithmic approaches to company-level emission data.