Professor Eddie Riedl discussed his paper outlining a novel approach to assessing business climate transition risk: i.e., the risks to firms in a transition to a low carbon economy. Prior work considers transition risk primarily through the lens of negative outcomes, such as increased costs due to more regulated carbon emissions. This paper takes an alternative and complementary perspective. It uses a unique textual analysis approach to identify firms having business opportunities reflected in “climate solutions:” that is, products and services that develop or deploy technologies in a transition to a low-carbon economy. The work demonstrates that firms having high exposure to climate solutions provide a hedge to equity investors against transition risk. Multiple approaches confirm this inference: for instance, high climate solution firms exhibit lower expected stock returns, higher current market valuations, and positive (negative) stock market reactions to climate-related events that signal increased (decreased) transition risk.
Eddie Riedl of Boston University’s Questrom School of Business presented.
Read the paper here.
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