Transition Versus Physical Climate Risk Pricing in European Financial Markets: A Text-Based Approach

Giovanna Bua, Daniel Kapp, Federico Ramella, Lavinia Rognone

Research output: Working paperPreprint

Abstract / Description of output

This paper studies the pricing of climate-risks in European equity markets. Using text-analysis, we construct two novel physical and transition risk indicators for the period 2005-2021. Our results document the emergence of economically significant transition and physical risk premia post-2015. We investigate which information investors use as a gauge for firms’ exposure to climate-risks running a firm-level analysis, using firms’ GHG emissions, environmental, and ESG scores, and a sectoral-analysis. While firm-level information appears to be used as a proxy for firms’ climate-risks exposure, especially for transition risk since 2015, the sectoral classification appears to proxy firms’ exposures to physical risk.
Original languageEnglish
Number of pages45
DOIs
Publication statusPublished - 25 Jan 2022

Publication series

NameECB Working Paper
No.2677

Keywords / Materials (for Non-textual outputs)

  • climate risk premia
  • transition risk
  • physical risk
  • text analysis

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