Lasse Heje Pedersen Wins EFA 2026 Best Conference Paper Prize
Professor Lasse Heje Pedersen has been awarded the EFA 2026 Best Conference Paper Prize for his paper “Climate Risk Pricing”, co-authored with Nicolae Garleanu. The paper examines how climate risks are priced in financial markets and shows that brown stocks can serve as climate-risk hedges when carbon taxes are too low.
Lasse Heje Pedersen, Professor at CBS and Director of the Center for Big Data in Finance (BIGFI), received the prize at the European Finance Association (EFA) Annual Meeting in Ghent, Belgium, held on 19–22 August 2026. The EFA Best Conference Paper Prize is the highest distinction awarded to an academic paper presented at the Annual Meeting.
In “Climate Risk Pricing”, Garleanu and Pedersen develop an environmental macro-finance model to study how markets price both physical climate risks and the transition to a low-carbon economy. A key finding is that brown firms can perform well in adverse economic states when low carbon taxes allow climate damages to worsen. This gives brown firms hedging value and can result in lower required returns than those of green firms.
The findings highlight a surprising distinction between financial and societal perspectives on climate risk. While increasing carbon taxes towards the social cost of carbon can improve long-run welfare, investors may have incentives to hold brown stocks as a hedge against climate risk. The paper shows how the relative pricing of green and brown stocks can therefore depend on the interaction between climate policy and climate shocks.
The research contributes to the growing literature on sustainable finance by showing that the relationship between climate risk, asset prices and investor preferences can be more complex than standard ESG predictions suggest.