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Climate-Triggered Institutional Price Pressure: Does It Affect Firms’ Cost of Equity?

Year: 2025

Type: article

Abstract: We document that climate-triggered institutional portfolio rebalancing affects S&P 500 firms’ cost of equity through climate change price pressure (CCPP). Using a demand-based asset pricing framework, we estimate firm-level CCPP from physical and transition exposures over 2005–2021. A one-standard-deviation intensification of CCPP raises the cost of equity by up to 6% of its average, with banks and insurers as the main drivers. Yet firms do not subsequently improve environmental performance, indicating that the statistically significant effect of CCPP on cost of equity is ineffective to alter corporate behavior. Our CCPP metrics can help policymakers and investors design targeted environmental strategies.

Source: Journal of Financial and Quantitative Analysis

DOI: 10.1017/s0022109025102226

Authors: George Skiadopoulos, Cheng Xue

Institutions: University of Piraeus, Queen Mary University of London, Nanjing Agricultural University

Language: English

Topic: Sustainable Finance and Green Bonds

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Climate action

Open Access status: green

OpenAlex ID: W4415785679

FWCI: 1.861

Cites: 70

Cited by: 2

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