Does the Cross-Section of Equity’s Return Include a Price for Carbon Risk? As Evidenced by Indian CDP Reporting Firms

Carbon emissions have been causing harm to the globe for decades, but the precise extent of the issue has remained unknown due to a lack of honest reporting. Credible reporting might expose the full cost of the damage and force companies to drastically cut their emissions. Currently, around 100 firms in India voluntarily report to CDP. Our prime objective of the study is to explore the relationship between carbon efficiency and firm value. We analyzed More than 100 Indian companies reporting to CDP for the period 2019 to 2022 by employing Univariate and bivariate portfolio analysis. The results signify that there was a carbon risk premium during the period 2018 to 2020. However, regarding 2020–2022, the result confirms the hypothesis that carbon-efficient stocks outrun inefficient stocks. It indicates that, in recent times, sustainable investment as regards carbon emission rewarding in the Indian equity market, and by the way, the convergence to sustainable investment practices is increasing.