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.