Firm‐Level Climate Change Exposure

Abstract

We develop a method that identifies the attention paid by earnings call participants to firms' climate change exposures. The method adapts a machine learning keyword discovery algorithm and captures exposures related to opportunity, physical, and regulatory shocks associated with climate change. The measures are available for more than 10,000 firms from 34 countries between 2002 and 2020. We show that the measures are useful in predicting important real outcomes related to the net-zero transition, in particular, job creation in disruptive green technologies and green patenting, and that they contain information that is priced in options and equity markets. CLIMATE CHANGE WILL PROFOUNDLY AFFECT the way business is conducted. Scientists have developed complex models that estimate the effect of greenhouse gas emissions on the global climate. At the same time, however, little

Climate change and stock market: a review

“…Despite recent increased focus on the relationship between climate risks and the financial system, little is known about how investors perceive such risks based on publicly available information. Therefore, a study performed on financial analysts instead of individual investors would not tell how corporate climate risk affects investors' perceptions of company risks [29]. Thus, a new study may close this gap.…”

“…The conversations on the earnings conference calls can be used to analyse news-based climate data. Sautner et al [29] examined the firm-level climate change exposure related to opportunity, physical, and regulatory shocks associated with climate change from conversations in the earnings conference calls of more than 10,000 firms from 34 countries between 2002 and 2019. They did this by using a machine learning keyword discovery algorithm.…”

Issuing bonds during the Covid-19 pandemic: Was there an ESG premium?

“…We base our analysis on corporate emissions intensity measured in terms of Scope 1 emissions (CO equivalents) over firms total assets or firm revenues. 14 The second proxy for the risk-channel takes advantage of the measure of climate change exposure recently developed by Sautner et al (2022a) . By applying machine learning techniques to earning calls transcripts, the authors are able to quantify firm-level exposure to climate change shocks.…”

“…CO2/Total Assets and CO2/Total Revenues measure scope 1 emissions over firms’ assets and revenues. CC exposure, CC regulatory exposure, CC physical exposure, and CC risk measure firm-level exposure to climate change and its corresponding degree of uncertainty, see Sautner et al (2022a) for the exact definition of each variable. *, **, and *** denote significance at, respectively, the 10%, 5% and 1% level.…”

“…To the best of our knowledge, this paper is the first to provide some empirical evidence of the interlink between these two channels and bond yield spreads. We proxy the contribution of the first factor using the share of sustainable funds holding the bond issuer’s stock and the second factor using both emissions intensity and a measure of exposure to climate change extracted from the earning call transcripts and developed by Sautner et al (2022a) . We do not find any of the two channels mutually excluding the other; on the contrary, they both played a role to determine the corporate cost of funding during the Covid-19 pandemic, with an impact of around 32 basis points for the non-pecuniary channel and approximately 15 basis points for the risk channel.…”