Ubs Group Ag · SIX:UBSG
Ubs — Technical Presentation (October 2020)
29 slides from Ubs's technical presentation, Oct 6, 2020
Slide 1: Do Investors Care about Carbon Risk?
Do Investors Care about Carbon Risk? Patrick Bolton (Columbia University) Marcin Kacperczyk (Imperial College) UBS Webinar October 6, 2020
Slide 2: Disclaimer
Disclaimer This presentation was produced solely by Patrick Bolton . The opinions and statements expressed herein are those of Patrick Bolton and are not necessarily the opinions of any other entity, including UBS AG and its affiliates. UBS AG and its affiliates accept no responsibility whatsoever f
Slide 3: Motivation
Motivation Rising temperatures and human-made climate change at the front of policy and social debate Challenge for a large host of players, including finance industry Strong link between temperature and CO2 (and other gas) emissions => inspires efforts to curb emissions Question whether car
Slide 4: Contrasting Views
Contrasting Views Two major recent developments to support the positive view: Paris climate agreement COP 21 of December 2015 committing to limit global warming to well below 2C above pre-industrial levels Rising engagement of the finance industry with climate change, largely as a result of th
Slide 5: Research Questions
Research Questions Is carbon risk priced? Are stock markets pricing carbon risk efficiently? (1) Use firm-level global information on disaggregated carbon emissions to estimate cross-sectional carbon premia (2) Study the economic mechanism behind the premia 4
Slide 6: Conceptual Framework
Conceptual Framework Static: The pricing of the transition risk depends on: The size of carbon emissions (risk level) Relative size of investor clienteles with different climate awareness (green vs. neutral investors) Degree of technological progress and political awareness Dynamic: If
Slide 7: Primer on Carbon Emissions
Primer on Carbon Emissions Three different basic sources of carbon emissions from a company’s operations and economic activity Data on scope 1 and scope 2 emissions have been more systematically reported Although scope 3 emissions are the most important component of companies’ emissions in a n
Slide 8: Data: Firm-Level Emissions
Data: Firm-Level Emissions We consider three different measures of emissions across three scopes: Firm-level emissions: related to long-term risk Percentage changes in firm-level emissions: related to short-term risk Emission intensity (in tons of CO2/$ million of revenues) 7
Slide 9: Summary of Results (1)
Summary of Results (1) Carbon emissions do affect stock returns, both in the U.S. and globally For all three categories of emissions we find a positive and statistically significant effect of levels & changes in emissions on firms’ stock returns The effect is also economically significant: abo
Slide 10: Summary of Results (2)
Summary of Results (2) The premium cannot be explained by a host of firm-level return predictors (size, B/M, IDIO VOL, momentum, investments, PPE, industry) The premium cannot be explained by profitability/earnings surprises The time-series premium cannot be explained by standard risk factors
Slide 11: Data: Sources
Data: Sources Our primary database covers the period 2005-2017 and is largely a result of matching two data sets by Trucost and FactSet Trucost provides information on corporate carbon and other greenhouse gas emissions Firm-level carbon emissions data are assembled by seven main providers, CD
Slide 12: Data: Variation in Emissions
Data: Variation in Emissions 11
Slide 13: Carbon Premia Measurement
Carbon Premia Measurement Carbon emissions are observed on an annual basis We estimate the pooled (panel) data regressions with: monthly stock returns as a dependent variable carbon risk as a main explanatory variable various firm-level characteristics as controls We include year-month f
Slide 14: Estimating U.S. Carbon Premia (Levels)
Estimating U.S. Carbon Premia (Levels) 13
Slide 15: Estimating U.S. Carbon Premia (Changes)
Estimating U.S. Carbon Premia (Changes) 14
Slide 16: Estimating U.S. Carbon Premia (Intensity)
Estimating U.S. Carbon Premia (Intensity) 15
Slide 17: Cumulative U.S. Carbon Premia (Levels)
Cumulative U.S. Carbon Premia (Levels) Unadjusted Premia (Total Emissions) Industry-Adjusted Premia (Total Emissions) 35 70 30 60 25 50 20 40 15 30 10 20 5 0 10 -5 0 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2005
Slide 18: Cumulative U.S. Carbon Premia (Changes)
Cumulative U.S. Carbon Premia (Changes) Unadjusted Premia (SCOPE) Industry-adjusted Premia (SCOPE) 60 80 70 50 60 40 50 30 40 30 20 20 10 10 0 0 2006 2006 2006 2007 2007 2008 2008 2008 2009 2009 2010 2010 2011 2011 2011 2012 2012 2013 2013 2013 2014 2014 2015 2015 2016 2016 2016 2017 2017 2006 200
Slide 19: Cumulative U.S. Carbon Premia (Intensity)
Cumulative U.S. Carbon Premia (Intensity) Unadjusted Premia (Intensity) Industry-adjusted Premia (Intensity) 12 10 10 8 8 6 6 4 4 2 2 0 0 -2 -2 -4 -4 -6 -8 -6 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Scope 1 Sco
Slide 20: Estimating Global Carbon Premia (Levels)
Estimating Global Carbon Premia (Levels) 19
Slide 21: Estimating Global Carbon Premia (Changes)
Estimating Global Carbon Premia (Changes) 20
Slide 22: Estimating Global Carbon Premia (Intensity)
Estimating Global Carbon Premia (Intensity) 21
Slide 23: Exploring Economic Mechanisms
Exploring Economic Mechanisms The role of profitability Carbon premium and systematic risk factors Carbon premium and divestment (“sin effect”) Limited attention and coarse thinking 22
Slide 24: Investor Attention (Paris COP21)
Investor Attention (Paris COP21) 23
Slide 25: Investor Attention (Imputed Data)
Investor Attention (Imputed Data) 24
Slide 26: Divestment based on Intensity (Aggregate)
Divestment based on Intensity (Aggregate) 25
Slide 27: Divestment (Disaggregate)
Divestment (Disaggregate) 26
Slide 28: Investor Attention (Salience)
Investor Attention (Salience) 27
Slide 29: Conclusions
Conclusions Carbon emissions are positively correlated with stocks returns The results cannot be attributed to: Profitability/Earnings surprises Systematic risk factor Divestment It is partly linked to investors’ limited attention and coarse thinking Results challenge previous evidence