This study examines the relationship between carbon risk and stock returns in Korea. We find that a firm’s carbon intensity is a significant determinant of its cross-sectional stock returns. Stocks with high exposure to carbon risk exhibit higher average returns. The abnormal return associated with carbon risk is statistically significant and cannot be explained by the Fama-French three- or five-factor models. Furthermore, this phenomenon is more evident among stocks with high foreign ownership. Finally, the carbon factor commands a significantly positive risk premium for firms with carbon emission information, suggesting that carbon risk is an important risk factor.