Corporate Climate Risk: Measurements and Responses

Abstract

This paper quantifies climate risk exposure at the firm level by conducting a textual analysis using earnings call transcript data. We construct dictionaries that measure physical and transition climate risks separately and identify firms that respond proactively. We validate our measures in a variety of ways and find that they capture firm-level variations in respective climate risk exposure. Firms facing higher transition risk, especially those that do not respond proactively, have been valued at a discount in recent years as aggregate investor attention to climate-related issues rises. Firms respond through investment and employment differently when their climate risk exposure increases.

Keywords: Climate risk, Transition Risk, Climate finance, Earnings calls, Valuation, Textual analysis

JEL Classification: G12; G31; C82; E44