The Double-Edged Sword of Firm’s Net Zero Commitment on the Carbon Risk Premium
HKUST IEMS Thought Leadership Brief No. 97
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In financial markets, more institutional investors and asset managers have started to include firms’ GHG emissions in their investment decisions. Given the combined pressure from the government, the public and the financial market participants, firms’ GHG emissions have become a new source of risk for investors. After firms declare a net zero commitment, the carbon risk premium may increase or decrease depending on firms' transition readiness. Institutional investors shape the premium by divesting from high-emitting firms that have declared NZC.
About the author
Keith Jin Deng Chan is an Assistant Professor in the Division of Environment and Sustainability at The Hong Kong University of Science andTechnology (HKUST). He specializes in applying economic and game theory to study the optimal design of governance mechanisms. He holds a PhD in Economics from the University of Cambridge.
Wilson Tsz Shing Wan is a PhD candidate in the Division of Environment and Sustainability at HKUST. He specializes in applying empirical methods to study the financial instability implications of climate finance. His paper, The Economics of the Greenium: How Much is the World Willing to Pay to Save the Earth?, was awarded for outstanding publication in the Journal Environmental and Resource Economics in 2023. He holds a MPhil in Economics from HKUST.
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