Corporate Climate Risk: Measurements and Responses
69 Pages Posted: 8 Jan 2020 Last revised: 29 Oct 2020
Date Written: July 2, 2020
This paper constructs a novel measure of climate risk at the firm level by adopting a textual analysis method. The measure captures the share of conversations on earnings conference calls that center on climate- and weather-related keywords, allowing us not only to construct a total climate risk measure but also to obtain disaggregated climate risk measures, such as those related to long- versus short-run factors, as well as corporate functions affected by climate risk. We analyze the determinants of firm-level climate risk using natural disasters and firm attributes and find that 60% of its variation is due to within-firm variation, and thus it mostly captures idiosyncratic risk at the firm level. We also examine the relation between climate risk and stock price volatility, as well as firm responses to climate risk. The results suggest that firms with higher unexpected climate risk significantly increase their investment while decreasing their employment in subsequent years.
Keywords: Climate risk, earnings calls, investments, natural disasters, textual analysis
JEL Classification: G12, C82, E44
Suggested Citation: Suggested Citation