Dec 2, 2021 - Energy & Environment

Report: Markets like carbon-cutting firms

Average price-to-earnings appreciation based on a 10% reduction in CO2 emissions
Data: Lazard Climate Center; Chart: Jared Whalen/Axios

Analysis of companies' market performance shows a relationship between emissions-cutting and higher share prices relative to earnings, a metric of investor confidence.

Driving the news: Lazard, a financial advisory firm, explored the equity values and emissions of over 16,000 companies in 2016-2020.

What they're saying: "The data accumulated so far make it clear that the more greenhouse gases a company emits, the lower its stock price relative to its earnings," Lazard's Peter Orszag and Zachery Halem write in a Bloomberg column.

  • "[I]t’s clear the stock market is already rewarding companies that reduce emissions with higher valuations," they write.
  • Orszag, who headed the White House budget office early in the Obama era, is Lazard's CEO for financial advisory. Halem directs the new Lazard Climate Center, which released the analysis yesterday.

Zoom in: The nexus between emissions and market performance varies by company size, type and location.

  • It's more pronounced for large companies, which the analysts posit is because of greater scrutiny and regulations.
  • "For European industrial companies with a market cap above $50 billion, the price-earnings multiple falls by a whopping 18% for every 10% increase in carbon emissions," their column notes.

What's next: They predict valuations will become increasingly tied to emissions as CO2 prices rise in Europe and, more broadly, as climate controls grow stronger.

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