Climate Change, Firm Performance, and Investor Surprises

Working paper
Sustainable & Impact Investing, Corporate Governance & Sustainability

We link firm performance, analyst forecasts, and the returns after earnings announcements to firm-specific measures of heat exposure for 4,400 firms in 57 countries from 1995 to 2017. We find that increasing exposure to extremely high temperatures reduces revenues and operating income. Moreover, both the deviation in analyst estimates from actual financial performance and the earnings announcement returns become more negative when firms' heat exposure increases. These findings indicate that investors do not anticipate the economic repercussions of heat as a first-order physical climate risk.

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