Climate News and Asset Valuations: Insights from Latin America

IMF Working Papers, February 7, 2025

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Study of the impact of climate-related news on asset prices in eight Latin American countries.
Construction of daily, country-specific indices via textual analysis using newspapers and official announcements.
Indices reflect media coverage of transition risks, climate opportunities, regulatory actions, and physical risks.
Analysis leverages an unbalanced daily panel data set of 628 firms from 2000 to 2023.
Key empirical finding: a significant and robust climate risk premium in Latin America, higher for "browner" firms and larger in more recent years.
Publication date: February 7, 2025.
Authors: Muhsin Ciftci, Christina Kolerus.

Textual analysis of newspapers and official announcements to construct daily, country-specific climate-news indices.
Focus on official gazette publications for major climate policies, after the legislative process has been completed.
Unbalanced daily panel: 628 firms observed between 2000 and 2023.
Country coverage: eight Latin American countries.

Existence of a significant and robust climate risk premium in Latin America.
The climate risk premium is higher for firms characterized as "browner" (higher-emission firms).
The climate risk premium has increased in more recent years.
Publication of major climate laws in official gazettes is associated with a protracted decline in the relative stock prices of high-emission firms.

Major climate policy announcements, once formally published, can have prolonged negative valuation effects on high-emission firms.
Market pricing appears sensitive to media coverage of transition risks, regulatory actions, and physical risks, suggesting information transmission via news matters for asset valuations.
The increasing climate risk premium in recent years indicates growing market recognition of climate-related financial risks, particularly for browner firms.