Climate risks, short and long

We study how climate policy risk is priced across the maturity structure of equity cash flows. Using textual analysis of European news articles, we construct indices of transition and physical climate risk and, drawing on recent advances in measuring the temporal dimension of text, classify climate news by the horizon it references. We combine these indices with prices of dividend futures and dividend swaps, which allow us to decompose stock price reactions to climate news into short- and long-term cash-flow components. Heightened transition-risk news lowers stock prices, and the decline is concentrated in long-maturity dividend claims. The evidence suggests that investors expect most firms to defer adaptation, leaving near-term earnings and payouts largely unchanged while bearing greater long-run exposure. Finally, firm-level sensitivities identify which companies the market perceives as adapting early — accepting short-term losses to invest in the transition — versus those most exposed to stranded-asset risk.