The market value of insurance companies and greenhouse gas emissions in the United States

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Abstract

Emissions of greenhouse gases (GHGs) are among the main causes of global warming and extreme weather events. Policymakers expect that GHG emissions lead to a higher incidence of acute and chronic climate risks. The insurance sector has a primary role in managing climate-related risks, affecting insurers on several dimensions, including their underwriting capacity, profitability, and performance (Gupta & Venkataraman, 2024). In this article, we focus on the USA to study how the stock market value of insurers is associated with the country’s GHG emissions. They impact the business of insurance companies on several dimensions, including their corporate valuation. In this article, we look at the USA and study the association between the country’s GHG emissions and the stock market value of insurers. We find that increasing GHG emissions and the generation of non-renewable energy are related to lower insurers’ equity prices, especially in the segment of property and casualty (P&C) insurance. This effect is persistent even after considering environmental taxes and fossil fuel government subsidies and has a stronger magnitude during periods of severe climate change risk, as well as in times of frequent natural disasters. Our interpretation is that market investors discount the value of insurance companies at higher expected returns when they face increasing climate change risks. These results deliver important insights to asset managers and policymakers.

Keywords: Insurance Companies, Market Value, Climate Change, Greenhouse Gas Emissions

Authors’ individual contribution: Conceptualization — S.B.; Methodology — S.B.; Formal Analysis — S.B.; Writing — Original Draft — S.B. and S.D.; Writing — Review & Editing — S.B. and S.D.; Supervision — S.B.; Funding Acquisition — S.B.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G12, G22, Q54

Received: 20.01.2025
Revised: 27.02.2025; 05.03.2025; 05.05.2025
Accepted: 29.05.2025
Published online: 04.06.2025

How to cite this paper: Bressan, S., & Du, S. (2025). The market value of insurance companies and greenhouse gas emissions in the United States. Risk Governance & Control: Financial Markets & Institutions, 15(2), 123–133. https://doi.org/10.22495/rgcv15i2p11