Environmental policies on the systematic risk of critical metals companies

Abstract

The increase in natural disasters due to climate change has prompted the adoption of measures to mitigate it, like the use of renewable energy sources. This study suggests that the transition risk associated with these policies will rise the demand for critical metals, increasing the systematic risk for companies that produce them. Using Bayesian structural time series, we find evidence suggesting that, following the Paris and Dubai Agreements, the systematic risk for copper and lithium-producing companies increased. At the same time, the changes for cobalt and nickel varied. So, future consideration should be given to hedging these assets.