Climate transition risk, profitability and stock prices

Juan Reboredo and Andrea Ugolini

International Review of Financial Analysis, 2022, vol. 83, issue C

Abstract: We investigate whether climate transition risk is reflected in the financial performance and cross-section pricing of publicly-traded European and US firms. Using a firm-level carbon risk score (CRS) that assesses the vulnerability of a firm's value to transition to a low-carbon economy, we find that firms with the lowest transition risk exposures perform better financially, and that European firms are more sensitive to transition risks than US firms. We also find that stocks with low exposure to transition risk offer greater returns to investors, consistent with the fact that stock prices of firms do not adequately reflect underlying climate transition risk. Relative financial performance of less vulnerable firms and underreaction effects to transition risk decreased after COP21.

Keywords: Climate transition risk; Financial performance; Profitability; Stock returns (search for similar items in EconPapers)
JEL-codes: G12 G14 G32 Q54 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:83:y:2022:i:c:s1057521922002289

DOI: 10.1016/j.irfa.2022.102271

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