Uncovering The Mispricing of Carbon Transition Risk in the Market

Exploring the impact of carbon transition risk on investments, the chapter reveals how emitting stocks may be outperforming rather than being riskier, leading to a potential mispricing issue. It dissects the link between carbon emissions and earnings surprises, shedding light on how companies with higher carbon emissions tend to deliver better-than-expected earnings, influencing stock prices. The discussion delves into the distinction between physical and transition risks, emphasizing the importance of considering both risk and outperformance in interpreting premiums like the carbon premium.