Americans use few things to gauge their nation’s prosperity more prominently than the state of the stock market. Despite countless other metrics (health, security, education, poverty rates, etc.), at the end of the day we look to the NASDAQ to tell us how we’re doing. So it’s surprising to consider that despite the business community’s vocal opposition against any law designed to limit companies’ carbon pollution, it appears to be ignoring the very stock market they claim to protect.
Investors, it turns out, have been taking matters into their own hands when it comes to supporting greener practices for some time now. As the new study The Relevance to Investors of Greenhouse Gas Emission Disclosures shows, big contributors to climate change have already begun to see their stock prices suffer as a result of their prodigious carbon emissions. Investors are already recognizing those emissions to be future costs that will ultimately bring down a company’s bottom line.
So let’s say Company A and Company B both make $1 million dollars in profit but Company B has substantially produces substantially more greenhouse gases. The researchers have found that investors will tend to choose company A, considering it the more reliable future investment.
The authors of the study compared the relationship between stock prices from the S&P 500, the TSE 200 (a Canadian stock index), and voluntary emission numbers provided to the Carbon Disclosure Project. The findings are summed up in these two premises:
- Greenhouse gas emission levels associate negatively with the price of a stock
- This relation is more dramatic for carbon-intensive companies, especially energy companies and utilities.
So companies whose production methods involve injecting high levels of carbon into the atmosphere can expect lower share prices from investors. On top of that, the study reports that upon press releases or 8-K filings – a filing with the SEC notifying of a development in the company such as bankruptcy, layoffs, or a plant shutdown – by the company regarding an change in expected emissions also effects the stock movement in the days nearest to the announcement. They estimate a 2% decline in stock price for a heavy emitter compared to a low emitter.
While the prospect of a mere 2% drop is a long way from convincing companies they need to reduce their carbon footprint, it’s a good sign that markets perceive a change in energy policy in the future and are actually willing to look beyond the immediate bottom line when investing capital — as they should. As the social and economic costs of climate change erode deniers’ insistence that inaction is preferable to regulation, proper accounting methods that shine a spotlight on a company’s emissions will be incredibly important to ensuring investors have good information.
The study shows that, despite the inactivity of our esteemed legislative branch, the moneymen have already begun to take emissions seriously. Businesses are anticipating a future in which greener technologies rule the day and have begun investing their money accordingly.
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