Abstract We study how environmental (E) exposure is priced in energy equities. Using 262 U.S. energy firms (2010–2024), we estimate panel quantile regressions at the weekly frequency based on the Fama–French five-factor model augmented with an E-tilted factor built from clean-energy indices (ICLN as the main proxy), orthogonalized to the market. The E coefficient displays a convex profile across the return distribution—large in the left tail, smallest near the median, and rising again in the right tail—indicating that E exposure matters most in stressed and exuberant states. A monthly replication delivers the same shape. Results are robust to replacing ICLN with PBW: the orthogonalized PBW factor yields a similarly convex path with a steeper right tail. To probe heterogeneity, we run firm-level (univariate) quantile regressions of excess returns on the orthogonalized E factor; the cross-firm mean and median paths are likewise convex, with widening dispersion in the tails. Sectoral splits reveal clear asymmetry: non-fossil firms exhibit substantially higher E loadings—especially at upper quantiles—while fossil firms’ E sensitivities are smaller but remain economically meaningful. Overall, markets price environmental exposure, and they do so state-dependently: the valuation of E is strongest at the extremes of the return distribution and differs systematically by business model.
Mirza et al. (Wed,) studied this question.