Preliminary Conference Programme

This paper shows that emissions trading systems (ETSs) globally enhance stock price informativeness at the firm level. ETS is particularly beneficial for firms where carbon-related information is financially material, earnings and returns are uncertain, and investors focus on carbon data. Our findings suggest that ETS reduces the cost of integrating carbon-related information by providing a transparent, market-based benchmark for carbon-related costs that are highly relevant for earnings forecasts. This leads to better-informed trading decisions and more accurate market prices. Correspondingly, analysts offer more precise and frequent earnings forecasts and are more likely to follow these firms after ETS implementation.

This paper studies how climate policy news corrects sustainability mispricing that arises when investors perceived green resilience diverges from firms’ revealed ESG vulnerability. Around major policy announcements, including COP meetings and the 2022 SEC disclosure proposal, we document systematic directional repricing in U.S. equities. On average, expected returns increase for firms whose resilience was previously overestimated and decrease for firms whose resilience was underestimated. The magnitude of the adjustment varies with market sentiment toward greenness: periods of elevated ESG optimism anchor expectations and attenuate repricing, whereas periods of ESG pessimism sharpen the correction. We also show that sentiment-driven discount-rate compression is concentrated among low-resilience (brown) firms, making them the primary carriers of optimism risk in the cross-section. Consistent with this mechanism, a dynamic strategy that tilts toward optimism exposure earns a positive premium, consistent with compensation for sentiment-reversal risk. Overall, the findings point to a belief-revision channel through which climate policy affects asset prices, with implications for sustainable investing and disclosure regulation.

How environmental regulation affects firms’ international competitiveness remains a central and contested question in strategy and economics. While carbon pricing is often criticized for imposing cost burdens that undermine export performance, alternative perspectives argue that regulation can spur innovation and enhance competitiveness. We examine this tension by studying the export consequences of California’s cap-and-trade program. Using a state–industry–year panel of manufacturing exports from US Census data, we implement a difference-in-differences design that compares California industries to otherwise similar industries in other U.S. states before and after the program’s implementation. We find that carbon pricing increases export performance, with effects concentrated in fuel- and electricity-intensive industries most exposed to the regulation. Mechanism analyses show that export gains operate through both supply-side innovation—reflected in higher export unit values—and demand-side sustainability preferences, as effects are strongest in environmentally stringent destination markets. These findings challenge the view that unilateral environmental regulation necessarily erodes competitiveness and instead suggest that carbon pricing can reconfigure comparative advantage by inducing innovation and enabling green differentiation in global markets.