Climate change salience and international equity returns

In this study, we examine climate change salience risk in international equity markets. We find that: (1) exposure to a single, broad measure of climate change salience risk is pervasive; notably it arises regardless of firms’ greenhouse gas emissions, (2) the exposure is priced – a return discount emerges for equities that perform well when climate change salience is high, and (3) the pricing is nonlinear – the return discount itself rises when the gauge of climate change salience is high. We also find that firms in countries with low weather-related losses and those in countries with high per-capita GDP exhibit greater marginal exposure to climate change salience risk. Overall, the results suggest climate change salience risk is not merely a reflection of narrowly defined stranded assets or of investor distaste for high-emission firms; instead, the findings indicate that climate change salience risk is widespread and nondiversifiable, and we interpret its pricing as reflecting a compensated risk exposure.