Real-Time Transition Risk

We develop a point-in-time index to approximate changes in transition risk from climate-related news events. We overcome the assumption that “no news is good news on climate” inherent in previous research as we specifically consider news to signal an increase or a decrease in the external pressure towards a shift to a lower-carbon economy. We evaluate the return sensitivity of publicly available green minus brown (GMB) portfolio proxies that apply different approaches to measure a firms’ environmental performance based on investors’ climate objectives. We find that short-term transition risk tends to affect stock prices based on firms’ business activity but not emissions.

Keywords: Transition Risk, Climate Finance, News Sentiment, Natural Language Processing, Asset Pricing

JEL Classification: G12, C8, Q54

Suggested Citation: Suggested Citation

Apel, Matthias and Betzer, André and Scherer, Bernd, Real-Time Transition Risk (August 17, 2021). Available at SSRN: https://ssrn.com/abstract=3911346 or http://dx.doi.org/10.2139/ssrn.3911346