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Physical climate change risk and ESG green premium

Author

Listed:
  • Jiaqi Wang
  • Guojin Chen
  • Peilin Hsieh
  • Wenpeng Chen

Abstract

We build an asset pricing model that incorporates climate change risk and firms’ ESG engagement to analyse their interactive effects on equity returns. Our model shows that a firm’s ESG engagement has three channels for influencing stock returns: its direct impact on resisting climate change risk, indirect reduction in systematic risk and attraction of green preference, and the empirical evidence shows that both risk–return relation and ESG engagement are priced. We also point out an inevitably negative and convex relation between the market Sharp Ratio and stocks market beta in an economy with climate change risk.

Suggested Citation

  • Jiaqi Wang & Guojin Chen & Peilin Hsieh & Wenpeng Chen, 2025. "Physical climate change risk and ESG green premium," Applied Economics, Taylor & Francis Journals, vol. 57(56), pages 9516-9529, December.
    • Handle: RePEc:taf:applec:v:57:y:2025:i:56:p:9516-9529
    DOI: 10.1080/00036846.2024.2421456
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