High greenhouse emissions lower companies' stock price -

Low levels of greenhouse gas emissions have a positive effect on a company's share price, according to a multinational research project.

A team analysed four years of data (2006-09) on firms listed in the Standard & Poor's 500, along with five years of data (2005-09) for the top 200 publicly traded firms in Canada.

They found that the greater a company's carbon emissions, the lower its stock price, all other things being equal. The correlation between stock values and greenhouse gas emissions was found in most industries, and was strongest for energy companies and utilities.

“After controlling for normal valuation factors like assets and earnings, we found the value of stocks to be a function of greenhouse gas emissions. It really does appear to be a valuation factor,” says Professor Paul Griffin of the University of California, Davis.  “Greenhouse gas emissions are important to investors in assessing companies.”

The team identified around 1,400 reports of events that could affect climate change, and then tracked the movements of stocks over the next few days.

They found that markets responded almost immediately when a company reported an event that could affect global climate change. “We see a response on exactly the day you would expect to see it, and that is when the information becomes public,” says Griffin.

Environmental specialist Angus Middleton of consultancy Renaissance Regeneration  says that while there are some truly ethical investors, most simply see high emissions as damaging to a company's bottom line.

Those with low emissions, he says, are seen as more efficient, and also as being proactive, with tighter legislation expected in future.

"There is a real business risk from climate change. Companies that can see this coming and react now are far more likely to be the market leaders in the future and far less likely to be hit by rising fuel, raw material, water and waste costs," he says. "They are also likely to be prepared for changing climate impacts

Interestingly, the US Securities and Exchange Commission mandates companies to disclose any information material to stock values - but doesn't include greenhouse gas emissions under this heading.

As things stand, around half of large US firms report greenhouse gas emissions through the Carbon Disclosure Project, a British organisation representing mostly institutional investors.

The study is here.