The climate finance is a new key area in finance as a discipline. Its importance is reflected in the context of the development of resilient climate infrastructure, environmental sustainability, and consequent achievement of the Sustainable Developmental Goals. Climate change and climate-related risks are recognized as significant and complex challenges for economies, financial stability, and global financial markets.
Given the multifaceted nature of climate risk, the literature makes distinction between physical (environmental) and transition (regulatory) risks. In this light, the main research objective of our project is to examine the relationship between media-based climate change risks and the international financial markets by focusing on both physical and transition risks, their effects on financial markets, and their implications for investors.
To proxy the climate change risks we will utilize two media-based climate risk measures: (1) the Media Climate Change Concern (MCCC) Index developed by Ardia et al. (2023) and based on the news about climate change published by ten major highly circulated US newspapers, and (2) climate risk factors developed by Faccini et al. (2023) who utilize textual and narrative analysis of Reuters climate change news to develop risk factors associated with physical and transition risks. We will also analyze the effects of the Paris Agreement which is perceived as the paradigm shift about the urgency of climate change.
The project has significant academic contribution to finance literature, as well as important practical implications for investors and policymakers. The intended academic contribution is related to merging different strands of literature to shed new light on each of them: (i) green and sustainable finance; (ii) climate risk in financial markets; (iii) international finance, and (iv) media-based financial risk measurement. Our results might be useful for portfolio managers in terms of risk management and evaluation of the climate change risk and its impact on asset pricing. The research project will have significant societal impact by raising awareness of the urgent need to respond to climate change.
The research project is led by Vanja Piljak, Associate Professor of Finance at the University of Vaasa. The research group was awarded a €100 000 grant in the grandround 2024 from the focus area future sustainable environment for . The project includes an international research team consisting of Professor Ramzi Benkraiem from Audencia Business School in France; Associate Professor Milos Vulanovic from EDHEC Business School in France; Assistant Professor Nebojsa Dimic from the University of Vaasa; and Maria Zhukova, PhD student in finance at the University of Vaasa.