Investors' carbon risk exposure and their potential for shareholder engagement

Lukas Benz*, Stefan Paulus, Julia Scherer, Janik Syryca, Stefan Trück

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)
1 Downloads (Pure)

Abstract

This article examines the exposure to and management of carbon risks of different investor types. Considering the dual role as portfolio manager and partial owner, we analyze carbon risk for investors both in terms of exposure to portfolio values and in terms of responsibility as shareholder of carbon-intensive firms. We show that among various investor types, the preference for holding carbon-intensive stocks differs substantially, even when considering traditional investment decision parameters. In particular, it is governments whose portfolio values are most threatened by a carbon risk exposure of 49%, but at the same time, they prefer larger ownership shares in polluting firms. In contrast, individual investors, investment advisors, and mutual funds avoid holding stakes in these firms, while revealing only a moderate exposure of their assets to carbon risk. In view of the Paris Agreement, which includes the consistent steering of financial flows towards a low carbon transformation of the economy, our study provides policymakers with important implications regarding the coverage and effects of respective regulations. By identifying the ownership structures of carbon-intensive firms and respective owners' portfolio compositions, we also offer implications for further research on portfolio decarbonization and shareholders' influence of corporate carbon management.

Original languageEnglish
Pages (from-to)282-301
Number of pages20
JournalBusiness Strategy and the Environment
Volume30
Issue number1
Early online date23 Aug 2020
DOIs
Publication statusPublished - Jan 2021

Bibliographical note

Copyright © 2020 The Authors. Business Strategy and The Environment published by ERP Environment and John Wiley & Sons Ltd. Version archived for private and non-commercial use with the permission of the author/s and according to publisher conditions. For further rights please contact the publisher.

Keywords

  • carbon risk
  • corporate carbon emissions
  • decarbonization
  • institutional ownership
  • investor behavior
  • shareholder engagement

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