Science and the stock market, investors' recognition of unburnable carbon

Paper explores why investors appear to have taken very limited action against carbon asset stranding risks.

The 2009 Nature article by Allen et al. and follow up by Meinhausen et al. were some of the most cited environmental studies in recent years, the latter ranking in the top 0.1% of science papers published that year according to Thomson Reuters’ Web of Science. 

The paper “Science and the stock market, investors recognition of unburnable carbon” conducts a statistical analysis of the relationship between the growing media focus on stranded assets and energy firm’s daily excess stock returns, attempting to answer the question “when and whether the stock market might have recognized the potential loss of value to energy company shareholders due to unburnable carbon”. It concludes that the overall stock price reaction to all stories from 2009 to the present represents a shareholder loss of $27 billion or 2.48%, in stark contrast to the current grim predictions. 

One of the possible reasons cited for the limited impact relates to investors’ dearth of information in companies’ financial statements. The paper states: “In the United States, the SEC (2010) requires all material risks and uncertainties to be disclosed about climate change. Yet after taking a comprehensive search of the most recent 10-K filings of the firms in our sample, we could find no mention of unburnable carbon or an equivalent phrase (based on the same search terms used to search for news media articles in Factiva). Proposals by private-sector groups for climate change risk disclosures in financial statements related to stranded assets (e.g., Asset Owners’ Disclosure Project, http://aodproject.net, Institutional Investors Groupon Climate Change, http://globalinvestorcoalition.org, Carbon Asset Risk Initiatve, http://www.ceres.org), however, may change the present disclosure imbalance."

As part of revisions to its Framework CDSB invites comment on options for reporting carbon stranded asset risks in mainstream reports. Click here for more information.

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