Title: Valuing Corporate Emissions Performance Under Net-Zero Targets: A Real Options Approach
Author: Prof. Ranadeva Jayasekera (Trinity College, University of Dublin; Judge Business School, University of Cambridge)

Abstract:

The Paris Agreement has prompted firms to commit to net-zero emissions targets, yet financial and regulatory decision-makers lack reliable tools for assessing whether firms are credibly on track. Most existing alignment metrics rely on static, point-in-time comparisons and provide limited insight into the dynamics of transition performance. We develop a trajectory-aware valuation framework grounded in real options theory that links firm-level emissions paths to economically interpretable measures of transition credibility. Annual Scope 1 and Scope 2 emissions serve as the underlying variable, while firm-specific Paris-aligned pathways define time-varying benchmarks. A baseline European option quantifies the surplus associated with remaining below a prescribed emissions path and applying the framework to annual emissions data for more than 600 global firms from 2015 to 2025, we show that trajectory-aware valuations reveal systematic differences that static alignment metrics obscure. The results reveal substantial heterogeneity across sectors and regions and demonstrate how dynamic, trajectory-based metrics can support the evaluation of corporate progress toward net-zero commitments. This framework contributes to literature by providing a transparent, risk-adjusted indicator that distinguishes between durable structural decarbonization and volatile or transient alignment, thereby mitigating greenwashing risks and supporting more efficient capital allocation in the transition to a low-carbon economy.

The public research seminars of the Department of Economics and Finance (DEF) at Tallinn University of Technology  usually take place on the second and fourth Wednesdays of the month both in onsite and online format, unless announced otherwise. The seminar will last one hour, presentation will last approximately 45 minutes followed by 15 minutes of discussion. The seminars are held in English. Questions about the seminar can be sent to the seminar coordinator Karsten Staehr [email protected]