Ziegler, Andreas, Timo Busch, and Volker H. Hoffman. "Corporate Responses to Climate Change and Financial Performance: The Impact of Climate Policy." Working Paper, Center of Economic Research at ETH Zurich, February 2009.

Authors' abstract:

This paper examines the relationship between corporate activities to address climate change and stock performance. By separately analyzing the US and European stock markets for different sub-periods, we highlight the impact of the underlying climate policy regime. Methodologically, we compare risk-adjusted returns of stock portfolios comprising corporations that differ in their responses to climate change. In this respect, we apply the flexible Carhart four- factor model besides the restricted one-factor model based on the Capital Asset Pricing Model (CAPM). While our portfolio analysis shows negative relationships over the entire observation period from 2001 to 2006, we find that a trading strategy, which bought stocks of corporations with a higher level of responses to climate change and sold stocks of corporations with
a lower level, led to negative abnormal returns in regions and periods with less ambitious climate policy, but to positive abnormal returns in regions and periods with stringent climate policy.