Publications
Publications
- 2024
- HBS Working Paper Series
Climate Solutions, Transition Risk, and Stock Returns
By: Shirley Lu, Edward J. Riedl, Simon Xu and George Serafeim
Abstract
Using large language models to measure firms' climate solution products and services, we find that high-climate solution firms exhibit lower stock returns and higher market valuation multiples. Their stock prices respond positively to events signaling increased demand for climate solutions. These firms also show higher future profitability during periods of regulatory uncertainty, unexpected increases in climate concerns, and when a larger share of their sales occurs in states with climate plans and stronger public support for addressing climate change. Overall, our results indicate that high-climate solution firms, whose business benefits as climate transition risks materialize, hedge investors against such risks.
Keywords
Technology; Generative Ai; Large Language Models; Climate Finance; Climate Change; Innovation and Invention; Environmental Sustainability; AI and Machine Learning; Investment; Financial Markets
Citation
Lu, Shirley, Edward J. Riedl, Simon Xu, and George Serafeim. "Climate Solutions, Transition Risk, and Stock Returns." Harvard Business School Working Paper, No. 25-024, November 2024.