A1221
Title: Measuring climate alignment: Disagreement across metrics and its effect on the cost of capital
Authors: Carmelo Latino - Smith School of Enterprise and the Environment, University of Oxford and Leibniz Institute for Financial Research SAFE (Germany) [presenting]
Gireesh Shrimali - University of Oxford (United Kingdom)
Abstract: The purpose is to review the methodologies of five prominent Paris Alignment Metrics (PAM) and document substantial disagreement across providers. To structure these differences, a taxonomy of methodological choices is proposed, and the main sources of divergence are decomposed. Applying this framework, it is shown that PAMs yield materially different alignment estimates for the same firms. Their financial relevance is then examined by linking PAM scores and their divergence to firms' cost of capital and institutional ownership. The results indicate that stronger and more consistent alignment is associated with a lower cost of capital and greater institutional holdings, while disagreement among different PAMs weakens these relationships.
