The impact of introducing cross-border adjustment mechanism in the EU on the value of Russian companies

Within the framework of the global climate agenda, one of the most significant initiatives to reduce greenhouse gas emissions is the introduction of the Carbon Border Adjustment Mechanism (CBAM) in the European Union. The purpose of this study is to confirm a significant negative impact of the CBAM on the value of Russian companies, as an example of transition climate risks implementation. This paper will provide empirical evidence that the Russian financial market assesses events related to the introduction of the CBAM as a new significant risk for Russian companies. Using event study methodologies and the construction of autoregressive models for assessing abnormal returns, the study confirms that the risks introducing the CBAM are priced into the Russian financial market. The study also demonstrates the possibility of mitigating transition climate risks, highlighting the need to include them in the analysis when forming company's long-term strategy. Furthermore, the author demonstrates an approach to obtain «cleaned» returns which allows for a good assessment of the effect of an event related to carbon regulation, as well as verifying the results for robustness. Although the volume of exports to the EU has significantly decreased, as has the risk from the introduction of the regulation, the findings will be relevant in the context of developing carbon regulation markets in Asian countries (China, Japan, Kazakhstan, etc.). This is the most likely development, considering that China, having declared its goal of achieving carbon neutrality by 2060, launched a national emissions trading scheme, similar to the EU's, in 2021 and is the largest export market for Russian carbon-intensive companies.

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