Measuring weather exposure with annual reports

Review of Accounting Studies, Forthcoming

44 Pages Posted: 20 Aug 2019 Last revised: 5 Aug 2022

See all articles by Venky Nagar

Venky Nagar

University of Michigan, Stephen M. Ross School of Business

Jordan Schoenfeld

Ohio State University (OSU)

Date Written: August 5, 2022


The FASB and IFRS Foundation's International Sustainability Standards Board have called for measuring individual firms' exposure to weather, a fundamentally amorphous concept, as a first step toward quantifying the impact of environmental factors on financial reporting. This study builds a large-scale measure of individual firm exposure to weather using linguistic analysis of annual reports. Preliminary analyses suggest that weather is a determinant of our measure: e.g., the measure increases significantly after the firm gets hit by a severe storm. Despite being constructed from largely backward-looking mandated reports, our measure is forward looking in that it can predict variation in returns around future extreme weather events. Exposure to our measure is also priced as a risk factor, further establishing its forward-looking nature systematically in the cross-section. Our measure appears to reasonably capture a firm's business exposure to weather, thus showcasing the power of accounting to measure the economic impact of environmental, social, and governance (ESG) factors.

Keywords: annual reports, asset pricing, climate, CSR, ESG, weather

JEL Classification: G12, G14, O13, Q54

Suggested Citation

Nagar, Venky and Schoenfeld, Jordan, Measuring weather exposure with annual reports (August 5, 2022). Review of Accounting Studies, Forthcoming, Available at SSRN: or

Venky Nagar

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-647-3292 (Phone)
734-764-3146 (Fax)

Jordan Schoenfeld (Contact Author)

Ohio State University (OSU) ( email )

Blankenship Hall-2010
901 Woody Hayes Drive
Columbus, OH OH 43210
United States

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