According to a recent study by Professor Paul Griffin (University of California-Davis), Associate Professor David Lont (University of Otago, New Zealand) and Yuan Sun (University of California-Berkeley), the amount of greenhouse gasses a company produces has a significant effect on its stock price. Griffin, Lont and Sun analyzed four years of data (2006-09) on firms listed in the Standard & Poor’s 500; and five years of data (2005-09) for the top 200 publicly traded firms in Canada. They  also discovered that markets respond almost immediately when a company reports an event that could affect global climate change, with stock values responding the same day as the disclosure.

The researchers developed mathematical models to analyze the exhaustive data. They found the link between stock values and greenhouse gas emissions to hold true in most industries, although the correlation was strongest for energy companies and utilities.

After controlling for normal valuation factors like assets and earnings, the investigators found the value of stocks correlated closely with greenhouse gas emissions. They drew the obvious conclusion that a corporation’s carbon footprint influences investors when they decide to buy or sell stock.

The full study can be downloaded at  http://ssrn.com/abstract=1735555

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