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The Impact of Climate Risk on Investment Returns of Listed Companies: Evidence from China

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  • Qiang Song

    (State Key Laboratory of Pollution Control & Resource Reuse, School of Environment, Nanjing University, Nanjing, China)

Abstract

In recent years, as global climate change intensifies and ESG investment concepts gain prominence, climate risk has become a crucial factor for investors and financial markets. Investigating how climate risk is priced in the Chinese capital market is both theoretically and practically important for promoting the sustainable development of China's capital markets and advancing green finance. This study employs natural language processing (NLP) to quantify the proportion of climate risk-related content in the annual reports of listed companies, creating an indicator to assess their climate risk level. The study uses climate risk of listed companies as the explanatory variable and annual stock returns as the dependent variable, applying a fixed-effects model to empirically examine the impact of climate risk on investment returns. The study finds that: first, the climate risk of listed companies shows a clear trend of change over time; second, there is a significant positive correlation between the climate risk of listed companies and investment returns.

Suggested Citation

  • Qiang Song, 2025. "The Impact of Climate Risk on Investment Returns of Listed Companies: Evidence from China," Review of Economic Assessment, Anser Press, vol. 4(1), pages 18-32, March.
    • Handle: RePEc:bba:j00010:v:4:y:2025:i:1:p:18-32:d:437
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    References listed on IDEAS

    as
    1. Yida Sun & Shupeng Zhu & Daoping Wang & Jianping Duan & Hui Lu & Hao Yin & Chang Tan & Lingrui Zhang & Mengzhen Zhao & Wenjia Cai & Yong Wang & Yixin Hu & Shu Tao & Dabo Guan, 2024. "Global supply chains amplify economic costs of future extreme heat risk," Nature, Nature, vol. 627(8005), pages 797-804, March.
    2. Naseer, Mirza Muhammad & Guo, Yongsheng & Bagh, Tanveer & Zhu, Xiaoxian, 2024. "Sustainable investments in volatile times: Nexus of climate change risk, ESG practices, and market volatility," International Review of Financial Analysis, Elsevier, vol. 95(PB).
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