Real-Time Transition Risk
55 Pages Posted: 27 Aug 2021 Last revised: 30 Aug 2021
Date Written: August 17, 2021
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