The transition from high- to lower-carbon production systems increasingly creates regulatory and market risks for high-emitting firms. We test to what extent financial investors demand a premium to compensate for such risks and thus might raise firms’ cost of equity capital (CoE). Using data for 1,897 firms spanning 50 countries over the years 2008–2016, we find a distinct and robust positive impact of carbon intensity (carbon emissions per unit of output) on CoE...