Firm value and government commitment to combating climate change

Abstract

We use portfolio time-series regression event-study methodology to examine the impact of government commitment to combating climate change on firm value. The Ceres/CookESG climate risk measure based on textual analysis of 10-K disclosures provides a useful summary measure of firm-specific climate risk We use this climate risk measure to form “climate risk hedge portfolios”: portfolios that take a long position in firms with a high exposure to climate risk and a short position in firms with low exposure to climate risk. For US firms, there is a significant −0.5% abnormal return for our hedge portfolio around signing of the Paris agreement, a significant 1% abnormal return around the election ..