Measurement of firm climate risks

This chapter presents firm-level measures of climate risk exposure, distinguishing between physical and transition risks while capturing both time-series and cross-sectional variation. These measures also help identify firms that respond proactively to climate challenges. We demonstrate that these measures have significant implications for firm performance in capital markets and for predicting real economic outcomes. In particular, firms with high transition risk - especially those that fail to respond proactively - have been increasingly discounted by investors as aggregate attention to climate issues has grown. We further show that these measures help explain the systematic differences in firm activities, including variations in investment, green innovation, and employment strategies. © 2026, the contributors. All rights reserved.