Guwahati: Researchers from IIT Guwahati and IIM Bangalore have made a breakthrough in the price of ‘carbon risk,’ revealed long-term risk for pollution company shares.
The analysis found ‘carbon risk premiums’ in stock returns because higher carbon emissions developed stock prices but could cause severe losses in the long run because the government imposed regulations on greenhouse gas emissions (GHG).
The new mathematical analysis conducted by researchers from IIT Guwahati and IIM Bangalore has established a relationship between the company’s carbon footprint and the potential risk of investing in these companies.
Safe! You have managed to throw your votelogin to see results “because the world is seen moving towards the sustainable future and the economy everywhere trying to reduce their carbon footprint, the future of companies that rely on excessive greenhouse gas emissions (GHG) remains uncertain, “The word IIT Guwahati release.
Extensive data analysis of more than 200 largest registered companies in the American market was carried out by researchers from this top institution.
To assess the company’s carbon footprint, GHG emissions directly from the company and buy GHG emissions (in power or heat consumption) are considered.
The research team includes Prof.
Siddhartha Pratim Chakrabarty from the Mathematics Department and Family School of Mehta Data and Artificial Intelligence, IIT Guwahati together with Prof.
Sankarshan Basu from the Ministry of Finance and Accounting, IIIM Bangalore and Mr.
Suryadepto Nag, A BS-MS student from Iiser Pune.
The analysis findings have been published in Arxiv, a reduced research sharing platform managed by the team at Cornell University, USA.
The researchers found that most of these companies (71.6%) have shown a decline in carbon emissions in the period 2016-2019.
It was found that carbon footprint has a positive correlation with the size of the company and income.
However, the correlation with loads is found a little less than that with income, which they attribute with the cost of switching to renewable energy sources.
Prof.
Siddhartha Pratim Chakrabarty said, “analyzes annual stock data returns, along with GHG emissions and other financial data (income, debt, and book value, among others), found that there is ‘carbon risk.
Premium’ in stock returns, which means inside Short-term, higher carbon emissions found inflating stock prices.
It was found that a higher carbon footprint gave a higher return to investors in the short term.
”
He further added that the past few years have seen many studies in climate finance, and the existence of carbon risk premiums has been confirmed independently by many researchers throughout the world.
The existence of such premiums has been associated with ‘carbon transition risk’, Chakrabarty said.
“When the adverse effects of climate change are increasingly visible, the government throughout the world may immediately impose regulations on GHG emissions or tax levies and higher charges of companies that contribute significantly to global warming,” he said.
If this happens, he said, the company will begin to lose profits, and in the case of extreme rules, it might even get into debt or bankruptcy, and their share value might drop.
“This can lead to severe losses for investors, and the next sale can cause other losses in a wider market,” Chakrabarty said.
While the estimated risk of premium has been carried out several times in recent years, there has not been much progress in measuring future risk, to date.
But in their paper, collaboration found mathematical relations between carbon risk premiums and future risk values.
The researchers studied the risks for different scenarios when regulations or “carbon transitions” can occur and find formulas for the maximum exposure of each company with a transition for a different time in the future.
For one family of the arrival process (the model when the transition will occur), they find that the average stock price in their data can fall (at most) amounting to 20.65% in the transition, if the transition is expected to occur at 10 years from now, and 41.3% If the transition is expected to occur 20 years from now.
The numbers that are suitable for most companies each of them are 45.04% and 90.08% respectively.
The researchers also showed various scenarios where investors could benefit from premium risk tradeoffs as well and show cases where it was more profitable to maintain shares for premiums and more profitable for sale or short.
share.