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Huy Pham and Vikash Ramiah

Environmental economics and accounting are well-established disciplines but environmental finance is in its infancy. In this chapter, we explore how the lessons learnt from economics and accounting literature can be extended to the finance discipline. For instance, the macroeconomic literature suggests that environmental regulations affect employment level, international trade and productivity, which in turn affect the market portfolio/systematic risk. The microeconomics literature implies that the cost and revenue functions of firms are altered – leading to a change in stock prices. The accounting literature focuses on environmental disclosure/performance, which subsequently leads to a change in the market value of the firm. The emerging finance literature shows the persistence of the ‘green effect’ and a risk-shifting behaviour in terms of the diamond risk structure.