Carbon emission and firms’ value: Evidence from Europe

Amidst the growing global concern about climate change, societies have taken increased interest in corporations’ output of greenhouse gas emissions, primarily . Our study examines the direct and indirect effect of carbon emissions on firm value. We document that, in the European context, corporate carbon emissions are negatively associated with a company’s market valuation. Moreover, we find that emissions reduce the relevance of earnings (i.e., for high-polluting firms, earnings are less relevant for market valuation). Additionally, we show that the results are driven by Scope 1 emissions, not by Scopes 2 and 3. Finally, we establish that the country-level formal and informal institutions shape these effects.