Climate Change, Transition Risk and Asset Prices: Theory, Empirical Evidence, and considerations for a smoother transition to a sustainable economy

Faculty Development Competitive Research Grants Program 2025-2027

Climate change and the related transition to a more sustainable economy represent two of the most prominent challenges of our time. With this project, we aim to contribute to the discussion about the three sub-topics briefly outlined above in the following way: 1. study if there is market awareness about the deep uncertainty in climate future evolution, i.e., if stock risk premia reflects these further layers of uncertainty. 2. Whether there exists a carbon premium, and, whether it exists, how it can be measured effectively by disentangling its effect from that due to the firm's size. 3. Provide a measure for the climate change exposure of individual firms. The three sub-projects are presented in detail below. The three subprojects, as well as the overarching motivation, are provided in the Research Proposal Form, attached to this application.