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This study reveals a significant negative impact of firms’ climate change exposure on idiosyncratic volatility (IDVOL) in the US from 2003 to 2020. We argue that while climate-related opportunities tend to diminish firms’ growth prospects by lowering IDVOL, exposures to regulatory and physical risks do not follow the same effect. ESG disclosures mitigate the negative effect of climate change exposure on IDVOL, evidencing informational efficiency. Firms in polluting, non-high-tech sectors, and highly regulated states are predominant for the negative impact of climate change exposure on firm-level risk. Information asymmetry and investor confidence explain the effect of firms’ climate change exposure on IDVOL. These findings underscore the importance of considering climate change risks in policy decisions by stakeholders.
Perera et al. (Wed,) studied this question.