Joop Huij, Dries Laurs, Philip Stork & Remco C. J. Zwinkels present Carbon Beta, a measure of climate transition risk determined by a stock’s return sensitivity to a pollutive-minus-clean portfolio.
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Presented in the Financial Analysts Journal from the CFA Institute, Joop Huij, Dries Laurs, Philip Stork and Remco C. J. Zwinkels introduce a new market-based measure of an asset’s climate risk exposure: carbon beta. Carbon beta measures a stock’s sensitivity to climate transition risk using a pollutive-minus-clean factor.
The study finds that carbon beta is higher for smaller and more leveraged firms, firms with more investments and fixed assets, as well as firms with lower R&D. Carbon betas correlate with green patent issuance and other forward-looking measures of climate risk.
Using a Climate Policy Uncertainty (CPU) index, the authors observe that stocks with positive carbon betas tend to fall in value when climate concerns rise. On the contrary, negative-carbon beta assets act as "climate hedges" because they deliver high returns when climate worries increase. In months when CPU rises, firms with higher carbon betas have lower returns.
Investors can use the framework presented in the article to build climate-aware strategies due to its transparency, accessibility and easy replicability. It can be applied by investors who lack emissions data or cannot afford commercial products, such as retail investors or low-cost ETF providers. Similarly, regulators and policymakers could also use carbon beta to flag firms with high transition risk.
Article:
Joop Huij, Dries Laurs, Philip Stork & Remco C. J. Zwinkels (2026) Carbon Beta: A Market-Based Measure of Climate Transition Risk Exposure, Financial Analysts Journal, 82:3, 111-137, DOI: 10.1080/0015198X.2026.2652222
Link to Article:
Published by
CFA Institute
CFA Institute
