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Climate risk and stock performance of fossil fuel companies: An international analysis

Author

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  • Gong, Xu
  • Song, Yijie
  • Fu, Chengbo
  • Li, Huijing

Abstract

We study the impact of climate risk on the stock returns of fossil fuel companies in international markets. Our results indicate that in the world market, a 1% increase in climate risk could increase the stock returns of fossil fuel companies by 3.02% to 4.27%. We also prove that this climate risk premium is notably more pronounced in countries with higher income levels. In addition, we find that the release of the IPCC 2007 report significantly changed the market's understanding of climate risk. Moreover, the readiness for climate risk of countries will also affect the returns of fossil fuel companies. Overall, our findings show a significant and heterogeneous existence of climate risk premium in fossil fuel companies and is conducive to promoting the understanding of climate risk in the equity market.

Suggested Citation

  • Gong, Xu & Song, Yijie & Fu, Chengbo & Li, Huijing, 2023. "Climate risk and stock performance of fossil fuel companies: An international analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:intfin:v:89:y:2023:i:c:s104244312300152x
    DOI: 10.1016/j.intfin.2023.101884
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