Researchers establish a new mathematical analysis of a relationship between the carbon footprint of companies and the potential risks of investing in these firms.
Analysis of 200 of the largest listed companies
According to the study, researchers from Indian Institute of Technology(IIT) Guwahati and Indian Institutes of Management (IIM) Bangalore carried out an extensive data analysis of over 200 of the largest listed companies in the American market. They also considered direct Greenhouse Gas (GHG) emissions of the companies and purchased GHG emissions (in power consumption or heat).
They found that most of these companies (71.6 percent) showed a decrease in their carbon emissions in the 2016-2019 period. It was found that carbon footprint had a positive correlation with the size of the companies and their revenues.
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However, the correlation with expenses was found to be slightly less than that with revenue, which they attributed to the higher expenses of switching to renewable energy sources.
The teams studied the risk for different scenarios when the regulations or “carbon transition” may happen and found a formula for the maximum exposure of each firm to the transition for different times in the future.
Researchers comment on their new establishment
“It was found that a higher carbon footprint gave higher returns to investors in the short term,” says Siddhartha Pratim Chakrabarty from the Department of Mathematics and Mehta Family School of Data Science and Artificial Intelligence at IIT Guwahati.
Additionally, the researchers also demonstrate the different scenarios in which investors could profit from the premium-risk trade-off and shows the cases in which it is more profitable to hold on to a stock for the premiums and those where it is more profitable to sell or short the shares.
