Falling for rising temperatures?
Keeping global temperature rise within safe bounds requires radical changes to the way we produce, consume, and invest. In this thesis, I investigate why and to what extent firms and their investors would care about rising temperatures. Based on a financial-economic perspective of risk management, I investigate how climate-related factors can be relevant for investment and financial outcomes.
I present four empirical studies, each focusing on specific climate-related indicators or practices, including firms’ carbon emissions and practices like internal carbon pricing and fossil fuel divestment.
The findings of these studies highlight that the transition towards a low-carbon economy constitutes a salient financial issue. Firms may increasingly face regulations that constrain and price carbon emissions. At the same time, competitors could develop lower-carbon technologies and serve the growing demand of consumers and investors for more sustainable products. In this thesis, I show that lagging behind on regulation and market developments impacts financial risks. Firms and investors can mitigate financial risks by reducing their climate-related impact and becoming better prepared for a carbon-constrained world.
Overall, this thesis underscores the important role that market mechanisms play in the transition towards a low-carbon economy.