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A new methodology for quantifying firm-level climate change exposure from earnings conference calls. The index captures attention paid by managers and financial analysts to climate topics. The measures, available for over 10,000 firms across 34 countries from 2002 to 2023, are useful in predicting important real outcomes related to the net-zero transition, notably job creation in disruptive green technologies and green patenting, and they contain information that is priced in options and equity markets.
The variable names consist of three parts.
Please refer to the document before using the data. These details are critically important to ensure proper usage.
A machine learning keyword discovery algorithm has been adopted to capture exposures related to climate change opportunities, physical risks, and regulatory risks.
Bigram Construction: The algorithm starts with a short list of initial keywords to identify climate change-related “bigrams” (pairs of words) in earnings call transcripts. It then discovers new climate change bigrams by reverse-engineering a machine-learning process.
The bigrams are categorized into:
The frequency of these bigrams, scaled by the total number of bigrams in the transcript, is used as a firm-level measure of climate change exposure.
Sentiment and Risk Measures: The researchers also construct “sentiment” measures (positive or negative tone) and “risk” measures (frequency of climate change bigrams mentioned with “risk,” “uncertainty,” or synonyms).
TF-IDF Adjustment: Term Frequency-Inverse Document Frequency is used to weigh bigrams according to their representativeness for climate discussions.
Regression Analysis: The paper uses various regression models (OLS, Poisson) and fixed effects to analyze the relationship between climate change exposure and real/financial outcomes.
Figure 1 Climate Change Exposure (CCE) rockets in 2021 and then cools down
Figure 2 Europe leads Regulatory CCE in recent years
Figure 3 China Opportunity CCE leads US / Europe
Figure 4 Physical CCE remains volatile
10,000 firms across 34 countries when the firms’ earnings call transcripts are available.
Annually
Sautner, Z., Van Lent, L., Vilkov, G., & Zhang, R. (2023). Firm‐level climate change exposure. The Journal of Finance, 78(3), 1449-1498.