The baseline estimate of the burden is 131% of a firm’s total equity value. A paper from the University of Pennsylvania has outlined how one surprising factor could be reducing the value of various firms, and getting a handle on the issue would be a smart move for shareholders, employees, and customers.
In a news release from the Finance Centers at the Wharton School, professors Robert Stambaugh and Luke Taylor broke down what they described as the “carbon burden” of businesses, which essentially puts a valuation on the carbon pollution a firm produces.
Stambaugh noted that this forward-looking valuation has two future dimensions. First, the rising global temperature is impacted significantly by a firm’s emissions path. Second, the annual pollution of a firm has negative climate consequences for years to come.
Taylor looked at two examples of highly polluting businesses, American Electric Power and NextEra Energy. Despite having similar pollution levels in 2023, AEP has a much smaller carbon burden than NextEra because it is predicted its emissions will fall in the future.
