Carbon emissions and firm profitability

We assess the empirical relation between firm profitability and reported carbon emission intensity. Using data on S&P 500 firms, we find that the cross-sectional relation between profitability and carbon emission intensity is strongly negative: firms with high carbon emission intensity have low profitability and vice versa. This finding is statistically significant in both portfolio sorts and Fama–MacBeth regressions. It is also robust to industry effects, across subsamples, using alternative profitability measures and using estimated carbon emission intensity for a larger cross section of firms.