The carbon risk premium : evidence from Chinese stock market

Although China is the largest emitter of carbon, little is known about how carbon emissions affect its stock market. We fill this gap by identifying the presence of the carbon risk premium in Chinese market that stocks of firms with higher total carbon emissions yield higher returns. Regulatory risk is one of the critical drivers of this premium, with domestic policies exerting a more substantial influence than international ones. The divestment of institutional investors and the heightened public awareness also amplify the carbon risk premium. Notably, this premium is robust even in low-emissions industries, and non-state-owned enterprises are exceptionally vulnerable. © 2025 City University of Hong Kong and National Taiwan University.