What the study found
Firms with greater exposure to carbon risk saw their stock prices increase relative to firms with lower exposure after the Supreme Court’s 2022 ruling in West Virginia v. EPA.
Why the authors say this matters
The authors conclude that this landmark climate litigation suggests climate transition risks can affect stock prices. They also state that the study helps show how legal and regulatory changes may be reflected in firm value.
What the researchers tested
The researchers examined stock-price changes around the Supreme Court decision that limited the Environmental Protection Agency’s regulatory powers by invoking the “major questions doctrine,” a legal principle about whether agencies have authority over major policy questions. They compared firms with different levels of carbon-risk exposure and looked at differences tied to prior federal climate enforcement intensity, state climate commitments, and carbon-sensitive institutional investors.
What worked and what didn't
The effect was stronger for firms that had faced higher federal climate enforcement intensity before the ruling. The effect was weaker for firms with long-term climate commitments by state governments and for firms with carbon-sensitive institutional investors. The authors also report that both cash flow and discount rate contributed to the climate-risk effect in firm value.
What to keep in mind
The abstract does not describe detailed limitations beyond the scope of the event studied. The findings are based on one Supreme Court ruling and the patterns reported in the abstract.
Key points
- Firms with greater carbon-risk exposure had higher stock prices relative to lower-exposure firms after the 2022 Supreme Court ruling.
- The authors say the findings suggest climate transition risks can affect stock prices.
- The effect was stronger for firms that had faced higher federal climate enforcement before the ruling.
- State climate commitments and carbon-sensitive institutional investors reduced the effect.
- Both cash flow and discount rate were reported to contribute to the climate-risk effect in firm value.
Disclosure
- Research title:
- Higher carbon-risk firms saw stock prices rise after EPA ruling
- Authors:
- Xiaoyi Lyu, Chenyu Shan, Dragon Yongjun Tang
- Institutions:
- Shanghai University of Finance and Economics, University of Hong Kong
- Publication date:
- 2026-04-03
- OpenAlex record:
- View
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