Climate change exposure, shareholder wealth, and the adoption of the Paris agreement: A text-based approach

Taking advantage of a distinctive measure of firm-specific exposure to climate change derived from sophisticated textual analysis, we examine the effect of climate change exposure on shareholder value using the signing of the Paris climate agreement. We find that companies more exposed to climate change experience more favorable market reactions to the adoption of the agreement. Specifically, a rise in climate change exposure by one standard deviation improves market reactions by 7.3%–8.8%. Further analysis corroborates the results, including propensity score matching, entropy balancing, an instrumental-variable analysis and Oster (2019) assessment of coefficient stability. Notably and somewhat surprisingly, the positive market reactions can be more attributed to the new business opportunities associated with the actions enabled by the Paris agreement than to the reduction in the physical and regulatory risk.