Canada's carbon policies are good news for domestic investors

New study finds unconventional correlation between corporate emissions and market value

Canada's carbon policies are good news for domestic investors

In this age of environmental awareness and a thirst for sustainable investments, higher carbon emissions should mean a lower market value for corporates.

However, while several studies have shown this to be the case, new research suggests that Canadian corporates may have increased market value despite carbon emission levels.

The University of California – Davis study found that this may be due to the policies implemented by federal and provincial governments that puts Canadian firms ahead of many global peers.

"We find a positive relation between the market value of Canadian firms and the level of their greenhouse gas emissions. This positive relation has strengthened in recent years, mainly for high emissions-intensity firms in the Canadian energy sector," explained Professor Paul Griffin from the university’s Graduate School of Management.

He added that Canada’s adoption of greenhouse gas protocols earlier than other countries is one factor along with Canada’s national and subnational expenditure policies that offset climate impacts on the economy.

The study was published last month in The British Accounting Review and co-authored by, among others, Carol Pomare of the Ron Joyce Center for Business Studies, Mount Allison University, New Brunswick.

It looked at data from publicly traded Canadian companies between 2006 and 2018 to examine the relevance to investors of greenhouse gas emissions.

Future performance
However, the findings do not mean that increased emissions would necessarily boost market value as the positives appear to be in future-looking performance.

Canada’s early adoption of greenhouse gas protocols means Canadian corporates will not face the same hikes in compliance costs as their peers, while investment in carbon mitigation projects help offset environmental concerns.

This is likely to mean a positive view from investors, although recent blacklisting of four Canadian firms by a $1 trillion wealth fund shows there is still more to be done.

"Consistent with this result, we find that the positive impact of emissions on firm value in Canada is amplified for high emission-intensity firms (mostly in Alberta). For these firms, the payoffs to environmental investment are greater compared with low emission-intensity firms (mostly in the Ontario-Québec corridor)," Griffin said. "Emissions data from two different sources -- voluntarily disclosed data by the firms and data mandated by the Canadian government -- generate the same findings."

The full paper can be read at