The Illusion of the Carbon Premium

Carbon that has not yet been emitted should not be used to predict stock returns. While this sounds obvious, prior research papers (e.g., Bolton and Kacperczyk, 2021) have done exactly that. This critical observation forms the basis for the Robeco Institutional Asset Management research team’s re-examination of the relationship betweenclimate risk and asset pricing. Investors and academics alike have sought to understand how environmental factors influence stock returns, often assuming that...