Abstract
Climate change has emerged as one of the most profound challenges shaping global business, finance, and governance. This thesis investigates how firm-specific climate risk exposure influences three critical corporate outcomes: firm value, ESG performance, and stock market volatility across a global sample of publicly listed firms from 2002 to 2023. Drawing on an integrated theoretical framework that combines Stakeholder Theory, Real Options Theory, the Resource-Based View, and Information Asymmetry Theory, the study examines how climate risk functions as both a financial constraint and a catalyst for strategic adaptation.Using a forward-looking, text-based measure of climate risk exposure derived from earnings call transcripts, the analysis captures managerial and investor perceptions of climate-related uncertainty in real time. The empirical design employs multiple econometric techniques, including fixed effects, propensity score matching, two-stage least squares, and quantile regressions, to address potential endogeneity and validate causal inference.
The findings reveal that higher climate risk exposure significantly reduces firm value, as markets price in transition costs, regulatory uncertainty, and potential asset stranding. Conversely, climate risk enhances ESG performance, indicating that firms strategically strengthen sustainability practices to mitigate stakeholder and reputational pressures. Climate risk also increases stock market volatility, reflecting investor sensitivity to climate-related information shocks. These relationships remain robust across alternative estimators, emissions-based proxies, and crisis periods.
Further analyses highlight strong heterogeneity across contexts: firms in carbon-tax regimes, developed economies, and carbon-intensive sectors display distinctive patterns of valuation penalties, ESG improvements, and volatility adjustments. The sector-specific findings reveal strong and interconnected patterns that existing theories in climate finance, corporate sustainability, and asset pricing only partially explain. To address this, this study proposes the Deep-Uncertainty Climate Pricing (DUCP) framework, which posits that climate change creates deep uncertainty around long-term cash flows, leading markets to discount future growth opportunities. This results in the steepest valuation declines and volatility spikes for intangible-intensive sectors when climate concerns rise, while sectors reliant on tangible assets face milder impacts. Additionally, firms across all sectors enhance ESG disclosures as a strategic hedge against regulatory and reputational risks, indicating that corporate sustainability efforts remain largely disconnected from market pricing mechanisms. The thesis contributes theoretically by linking multi-dimensional climate risk to corporate strategy and market dynamics and practically by informing policymakers, investors, and managers on how climate exposure shapes financial and non-financial performance in an era of accelerating environmental transition.
| Date of Award | 24 Jun 2026 |
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| Original language | English |
| Awarding Institution |
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| Supervisor | Yongsheng Guo (Supervisor) & Xiaoxian Zhu (Supervisor) |