Annual Conference

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Sustainable and Green Finance

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May 2023

Climate Change Salience and International Equity Returns

In this study, we examine climate change salience risk in international equity markets. We find that (1) exposure to a single, broad measure of climate change salience risk is pervasive; notably it arises regardless of firms’ greenhouse gas emissions, (2) the exposure is priced: a return discount emerges for equities that perform well when climate change salience is high, and (3) the pricing is nonlinear: the return discount itself rises when the gauge of climate change salience is high. We also find that firms in countries with low weather-related losses and those in countries with high per-capita GDP exhibit greater marginal exposure to climate change salience risk. Oveall, the results suggest climate change salience risk is not merely a reflection of narrowly defined stranded assets or of investor distaste for high-emission firms; instead, the findings indicate that climate change salience risk is widespread and nondiversifiable, and, we interpret its pricing as reflecting a compensated risk exposure.
Keywords: Climate change risk, climate change salience, climate finance, carbon risk, global warming, climate beta, international financial markets, global equity markets
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