Lazard has announced the formation of the Lazard Climate Center to provide insights on the financial effects of climate change and the energy transition on companies and markets.
Lazard says the Center looks to fill a gap in climate research which until now has tended to focus on national or sector-level trends as opposed to the impact on specific companies. The Lazard Climate Center’s research includes more than 16,000 global companies from 2016 through 2020, and finds a significant relationship between carbon dioxide emissions and a company’s price-to-earnings ratio. Larger companies, and those in high-emitting industries such as the energy sector, tend to be the most affected.
For example, on average, a 10% decrease in a large energy company’s emissions corresponds with a 3.9% and 8.7% increase in the company’s price-to-earnings ratio in the U.S. and Europe, respectively. The valuation effect is also shown to be impacted by regulatory changes, suggesting that future policies (many of which are currently being crafted) could amplify the financial incentive for companies to engage in decarbonization. In addition, the research is the first to find that other greenhouse gases, such as methane and hydrofluorocarbons, can have an impact on valuation multiples.
“Climate change affects all sectors of our global economy and creates new, evolving risks for companies as well as for investors,” said Peter R. Orszag, Chief Executive Officer of Lazard’s Financial Advisory business. “Lazard looks forward to being a driving force in data-driven insights as business leaders, investors and policy makers tackle the climate crisis in the years and decades to come.”
The Center’s Senior Advisors are leading academics including Joseph Aldy of Harvard, Patrick Bolton of Columbia, Marcin Kacperczyk of Imperial College, and Andrew Lo of MIT. The Center’s Director, Zachery Halem, was formerly a climate finance researcher at MIT.