We use the price valuation gap between high- and low-emission firms to capture the multifaceted impacts of climate change on firms.  Using global data, we show that high-emission firms have lower price valuation ratios than low-emission firms in the same country, especially in recent years. The country's price gap coincides with better climate policies and with heightened climate awareness following local natural disasters. In the presence of equity price pressure, high-emission firms reduce carbon emission levels, increase green innovation, and downsize operations. Our findings are not driven by economy-wide factors, as private high-emission firms do not show the same results.

Working paper

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