RT Journal Article
SR Electronic
T1 Climate Alpha with Predictors Also Improving Company Efficiency
JF The Journal of Impact and ESG Investing
FD PMR
SP jesg.2021.1.030
DO 10.3905/jesg.2021.1.030
A1 Joshua Kazdin
A1 Katharina Schwaiger
A1 Viktoria-Sophie Wendt
A1 Andrew Ang
YR 2021
UL https://pm-research.com/content/early/2021/10/22/jesg.2021.1.030.abstract
AB Characteristics of companies associated with climate change predict excess equity returns. This article shows that companies with low-carbon-emission intensities—with carbon emissions being a key component of the Paris Agreement—have high excess returns. The authors present evidence that companies with low carbon emissions have high productivity and that low carbon intensities may reflect greater company efficiencies. A portfolio of companies with a high proportion of Leadership in Energy and Environmental Design (LEED)-certified buildings also exhibits high excess returns. Such companies also contemporaneously exhibit high return on assets. Portfolios constructed with carbon emission intensity and LEED-certified building signals are only weakly correlated with a traditional quality factor. The authors further discuss how climate change–themed measures of company efficiency may drive value for sustainably focused investors.Key Findings▪ Companies with low-carbon-emission intensities have high excess returns and also high productivity, reflecting company efficiency.▪ A portfolio of companies with a high proportion of LEED-certified buildings also exhibits high excess returns and high return on assets.▪ Portfolios constructed with carbon emission intensity and LEED-certified building signals are only weakly correlated with a traditional quality factor.