Climate Finance Transition Risk under Uncertainty: Text-Mining Evidence from the Japanese Equity Market

This paper quantifies transition finance risk in Japan using a text-mined index constructed from over 60,000 newspaper articles (2008–2025), combined with structural vector autoregression and firm-level local projections. Four findings emerge. First, transition risk shocks generate persistent equity effects, with prices declining for up to 18 months, while GDP and inflation responses remain statistically insignificant at all horizons. This suggests that transition risk operates primarily through discount rates and risk premia rather than contemporaneous real activity. Second, once economic policy uncertainty (EPU) is controlled for, average green–brown return differentials are economically small (−0.043 standard deviations) and remain statistically significant. Equivalence tests indicate these differentials are practically negligible ruling out monthly effects as small as 0.1% suggesting that estimates without EPU controls conflate general macroeconomic uncertainty with transition-specific effects. Third, transition risk exhibits state dependence. During elevated uncertainty, brown firms experience larger equity penalties (−4.12% versus −1.85%), a 123% amplification. Fourth, transition shocks display persistence and autonomous dynamics, consistent with an independent source of systematic financial risk rather than a proxy for conventional macroeconomic shocks. The amplification during high-uncertainty periods has implications for the macro-financial timing of climate policy.