From Carbon to Social Risk: The Pricing of Vulnerable Employment in Global Equity Markets

This thesis investigates whether sustainability-related characteristics beyond carbon emissions are associated with stock returns, with particular attention to vulnerable employment and to the role of the institutional and labour-market environment. Building on the carbon pricing literature, and especially on the framework developed by Bolton and Kacperczyk, the analysis uses carbon emissions as an environmental benchmark before extending the framework to a specific social dimension of sustainability. The empirical analysis is based on a large international firm-month panel covering the period 2014–2021. The main sample includes approximately 1.55 million observations and combines monthly stock returns with firm-level financial characteristics, carbon emissions, vulnerable employment measures, and country-level institutional and labour-market indicators. The empirical strategy relies primarily on panel regressions with firm-level and country-level controls and fixed effects, complemented by several robustness and heterogeneity analyses. The results do not confirm the positive carbon premium documented in the reference literature. More importantly, vulnerable employment is negatively associated with subsequent stock returns once the main observable firm characteristics and the other controls included in the specification are taken into account. This result should therefore be interpreted as a conditional association rather than as an unconditional relationship or evidence of a social risk premium. The negative association also remains present after controlling for carbon exposure. The analysis further provides evidence of heterogeneity across institutional environments, with the most systematic results associated with Employment Protection Legislation, although these findings do not identify a causal institutional mechanism. Overall, the findings show that the relationship between vulnerable employment and stock returns depends on the characteristics included in the empirical specification and varies across institutional contexts. More broadly, the results suggest that the financial implications of different sustainability dimensions cannot necessarily be interpreted through the same risk-premium framework.