- Inaugural research finds significant
relationship between changes in companies’ CO2 emissions and stock
market valuations, across sectors -
Lazard Ltd (NYSE: LAZ) today announced the formation of the
Lazard Climate Center to provide rigorous, data-driven insights on
the financial effects of climate change and the energy transition
on companies and markets. The initiative seeks to fill a crucial
gap in climate research, which until now has tended to focus on
national or sector-level trends as opposed to the impact on
specific companies. Formally launching today at the first Lazard
Climate Conference, the Climate Center will release its inaugural
findings on the relationship between greenhouse gas emissions and
corporate valuations of public companies globally.
The Lazard Climate Center’s research, which is the most
comprehensive analysis to date and includes more than 16,000 global
companies from 2016 through 2020, finds a significant relationship
between carbon dioxide emissions and a company’s price-to-earnings
ratio. Larger companies, and those in high-emitting industries such
as the energy sector, tend to be the most affected. For example, on
average, a 10% decrease in a large energy company’s emissions
corresponds with a 3.9% and 8.7% increase in the company’s
price-to-earnings ratio in the U.S. and Europe, respectively. The
valuation effect is also shown to be impacted by regulatory
changes, suggesting that future policies (many of which are
currently being crafted) could amplify the financial incentive for
companies to engage in decarbonization. In addition, the research
is the first to find that other greenhouse gases, such as methane
and hydrofluorocarbons, can have an impact on valuation
multiples.
“Climate change affects all sectors of our global economy and
creates new, evolving risks for companies as well as for
investors,” said Peter R. Orszag, Chief Executive Officer of
Lazard’s Financial Advisory business. “Lazard looks forward to
being a driving force in data-driven insights as business leaders,
investors and policy makers tackle the climate crisis in the years
and decades to come.”
“The work of the Lazard Climate Center will complement our ESG
research capabilities, which are integrated across all of our
investment processes,” said Ashish Bhutani, Chief Executive Officer
of Lazard Asset Management. “We expect it to add value to our asset
management platforms and customized client solutions in the
future.”
Lazard’s Climate Center brings together academic scholars and
finance practitioners to provide unparalleled analysis at the
corporate level. The Center aims to fill knowledge gaps and focus
on the practical implications of the analysis. The Center’s Senior
Advisors are leading academics including Joseph Aldy of Harvard,
Patrick Bolton of Columbia, Marcin Kacperczyk of Imperial College,
and Andrew Lo of MIT. The Center’s Director, Zachery Halem, was
formerly a climate finance researcher at MIT. Future research
directions include investigating the effects of emissions profiles
on M&A transactions, exploring linkages between firm valuation
and climate sentiment in news and earnings reports, and evaluating
the implications of the growing carbon offsets market.
Other key findings from the Lazard Climate Center’s inaugural
research include:
- U.S. and European companies exhibit relatively similar
correlations between emissions and valuations, but year-over-year
trends differ. For example, the valuation impact of emissions on
large companies in Europe appear to have been very sensitive to
changes in the EU Emission Trading Scheme’s carbon price.
- Debt markets are also starting to price higher emissions: for
small companies (especially in Europe), higher emissions are
associated with higher credit default swap spreads.
- Greenhouse gases such as methane and hydrofluorocarbons are
likely to become increasingly important as policies are enacted to
further curb these emissions.
The first Lazard Climate Conference will assemble academic
researchers and financial industry professionals for a day of
discussions regarding climate change’s risks to financial
institutions, the corporate transition, and needs for regulation
and policy. Future conferences will provide a forum to discuss
advances in the field of climate finance, how corporations can
translate such findings into practice, and investment implications.
For further information on the conference, contact Katharine Meeker
(katharine.meeker@lazard.com).
Lazard’s research reflects our commitment to intellectual
differentiation and insight into the crucial sectors of the global
economy. Lazard also publishes the annual Levelized Cost of Energy,
Storage and Hydrogen Analyses, which are posted at
www.lazard.com/perspective.
LAZARD CLIMATE CENTER SENIOR ADVISORS
Joseph E. Aldy is a Professor of the Practice of Public Policy
at the Harvard Kennedy School, where he focuses on climate change
policy, energy policy, and regulatory policy. During the first two
years of the Obama Administration, he served as the Special
Assistant to the President for Energy and Environment at the White
House. Professor Aldy is also a University Fellow at Resources for
the Future, a Faculty Research Fellow at the National Bureau of
Economic Research, and a Senior Adviser at the Center for Strategic
and International Studies.
Patrick Bolton is the Barbara and David Zalaznick Professor of
Business at Columbia University and visiting Professor at Imperial
College London. He is a past President of the American Finance
Association, a Fellow of the Econometric Society, the American
Academy of Arts and Sciences, and a Corresponding Fellow of the
British Academy. He has co-authored Contract Theory (2005) with
Mathias Dewatripont and The Green Swan: Central Banking and
Financial Stability in the Age of Climate Change (2020) with Morgan
Despres, Luiz Pereira Da Silva, Frederic Samama, and Romain
Svartzman.
Marcin Kacperczyk is a Professor of Finance at Imperial College
London with research interests in the areas of sustainable
investments, information economics, financial intermediation, and
artificial intelligence. He is a Research Associate at the Center
for Economic Policy Research, a research advisor at the European
Central Bank, and the Editor of the Review of Asset Pricing Studies
and the Review of Finance.
Andrew W. Lo is the Charles E. and Susan T. Harris Professor at
the MIT Sloan School of Management and the director of the MIT
Laboratory for Financial Engineering. His most recent research
interests include impact investing, climate finance, and healthcare
finance.
ABOUT LAZARD
Lazard, one of the world's preeminent financial advisory and
asset management firms, operates from 41 cities across 26 countries
in North America, Europe, Asia, Australia, Central and South
America. With origins dating to 1848, the firm provides advice on
mergers and acquisitions, strategic matters, restructuring and
capital structure, capital raising and corporate finance, as well
as asset management services to corporations, partnerships,
institutions, governments and individuals. For more information on
Lazard, please visit www.lazard.com. Follow Lazard at @Lazard.
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Media Contacts: Judi Frost Mackey, +1 212 632 1428
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Investor Contact: Alexandra Deignan, +1 212 632 6886
alexandra.deignan@lazard.com
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