Firm-Level Climate Change Exposure

Can earnings calls reveal which firms win or lose from climate change?

Zacharias Sautner, Laurence van Lent, Grigory Vilkov, and Ruishen Zhang measure the attention analysts and managers devote to each firm’s climate exposure in “Firm-Level Climate Change Exposure”.

They analyse quarterly earnings call transcripts from more than 10,000 firms in 34 countries between 2002 and 2020, scoring each call by the share of its conversation devoted to climate topics.

Separate scores capture opportunities, regulatory shocks and physical shocks, and a human reading of 2,090 call samples confirms 91% of top-decile hits. Their main conclusions include:

• Between 70% and 96% of the variation in exposure plays out at the firm level rather than across industries, countries or years, so sector averages hide clear climate winners and losers.
• TotalEnergies and ExxonMobil show similar regulatory exposure since 2010, yet TotalEnergies scores more than seven times higher on opportunities, consistent with how far each major is seen to embrace renewable energy.
• Regulatory and opportunity exposure rise with GHG emissions and media attention to climate change, while physical exposure is unrelated to both and mostly captures firm-specific shocks.
• Among US firms, a one standard deviation rise in exposure predicts 109% more green-tech job postings and 72% more green patents the next year, pointing to redirected innovation.
• Higher exposure makes both crash protection and upside bets more expensive, especially for opportunity exposure, although effects are modest and hardly tradeable after costs.
• Shocks to aggregate climate attention carry a positive equity risk premium (~3.7%/year on the S&P 500), with large swings, peaking during the 2008 financial crisis and after the Paris Agreement.

This paper suggests investors can keep broad sector diversification and screen out climate losers within each industry rather than exclude whole sectors.

It also shows earnings calls carry information beyond carbon emissions, the climate metric institutional investors use most, as green hiring and patenting results hold after controlling for emissions.

The scores measure attention in English-language calls up to 2020 rather than fundamental exposure, and real outcomes are tested on US firms only, so evidence from recent years and other markets would strengthen their use in portfolio decisions.