Carbon

Carbon that has not yet been emitted should not be used to predict stock returns. While this sounds obvious, prior research papers have done exactly that. This critical observation forms the basis for the Robeco Institutional Asset Management research team’s re-examination of the relationship between climate risk and asset pricing. Investors and academics alike have sought to understand how environmental factors influence stock returns, often assuming that higher emitters command a risk premium. However, the timing of data availability is crucial in quantitative strategy formation, and misalignments here can lead to spurious conclusions about the pricing of carbon emissions.