PT  - JOURNAL ARTICLE
AU  - Alex Gurvich
AU  - Germán G. Creamer
TI  - Carbon Risk Factor Framework
AID  - 10.3905/jpm.2022.1.416
DP  - 2022 Aug 26
TA  - The Journal of Portfolio Management
PG  - jpm.2022.1.416
4099  - https://pm-research.com/content/early/2022/08/26/jpm.2022.1.416.short
4100  - https://pm-research.com/content/early/2022/08/26/jpm.2022.1.416.full
AB  - This research provides new perspectives on carbon risk factors by using raw carbon footprint data, applying more accurate measurement of carbon footprint data, analyzing the global stock universe, utilizing a long data timeframe, and constructing three unique carbon factors. The research uses both Fama–French and Fama–MacBeth frameworks. All three carbon factors (carbon volume, carbon financial efficiency, and carbon operational efficiency) exhibit strong performance and high Sharpe ratios. There is no discernable return variation within the carbon volume factor along six formed portfolios. Both efficiency factors show a discernable higher performance for higher-carbon-efficiency companies with larger market capitalization. The regression analysis shows all three carbon factors exhibiting statistical significance individually or carbon volume with one of the efficiency factors. In conclusion, companies with relatively higher carbon volume or lower carbon efficiency have a positive risk premium.