Impact of geographic dispersion of carbon emissions on firm valuation

The transition towards a net-zero economy faces a finite timeline, which increases the level of carbon-transition risk for companies with high pollution levels. Firms that voluntarily disclose a comprehensive breakdown of their carbon emissions across various geographic regions may signal carbon leakage through operational diversification. This disclosure also highlights the complexity and challenges these firms face in complying to diverse regulatory frameworks aimed at reducing their carbon footprint. We investigate the impact of the geographical dispersion of carbon emissions on firm value by analyzing voluntarily disclosed carbon emissions data from the Carbon Disclosure Project (CDP) on a global level for the period 2010-2020. We find that geographically dispersed carbon emissions reduce firm value. This suggests that spreading negative climate impacts across regions is costly for polluting firms.