Abstract
This study examines the relevance to investors of the greenhouse gas (GHG) emissions of publicly-traded Canadian firms over 2006–2018. Based on two independent datasets, we document that firm value varies positively in the level of emissions. This result suggests that the Canadian setting differs from those studied previously, notably because of low climate litigation risk and national and subnational expenditure policies to offset climate impacts on the economy. While national and subnational expenditures to mitigate emissions affect firms' on-balance-sheet costs and profits, investors price the future payoffs to these expenditures into firm value. Supporting this view, we find that the positive relation between emissions and firm value in Canada is amplified for high GHG-intensity firms (mainly energy firms in Alberta), whose future payoffs to environmental policies and spending exceed those of low GHG-intensity firms. Our results are consistent with investors’ recognition of the benefits to firm value of national and subnational policies to decarbonize the Canadian economy.
•We find a positive relation between the market value of Canadian firms and the level of their greenhouse gas emissions.•This positive relation has strengthened in recent years, mainly for high emissions-intensity firms in the Canadian energy sector.•These findings differ from previous analyses of the valuation of emissions of Australian, US, and EU firms.•Investors view these policy factors as favorable for firm value net of the costs and risks of regulatory compliance.•Voluntarily disclosed emissions data from the CDP and emissions data mandated by the Canadian government generate the same findings.