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, surprisingly, that brown stocks can serve as climate-risk hedges.
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 acaemic paper presented at the Annual Meeting.
In "Climate Risk Pricing," Garleanu and Pedersen develop an environmental macro-finance model in which markets price both physical climate risk and the risk of the transition to a low-carbon economy. The key insight is that climate risk is two-sided. Brown firms lose if carbon taxes rise, as is widely recognized. But brown firms profit if future carbon taxes turn out low, and that is exactly the scenario in which climate damages worsen. Because brown assets pay off in the state that is bad for society, they hedge climate policy risk, which can lower their required returns relative to those of green firms. Uncertainty about caron taxes thus has a perverse side effect: it lowers the cost of capital of the firms whose activities society most wants to curtail. What is a hedge for the individual investor can be a disaster for the planet.
Read the paper here: Climate Risk Pricing