Essays in climate finance
File(s)
Author(s)
Faralli, Matilde
Type
Thesis
Abstract
This dissertation investigates how climate‐related risks are incorporated in financial markets through three empirical studies spanning equity analysts’ earnings forecasts, credit risk, and corporate bankruptcies.
Chapter 1 explores how exposure to extreme weather events affects equity analysts’ earnings forecasts. Using a novel dataset that links natural disasters to analysts’ office locations across the U.S. from 2000 to 2020, I show that forecast accuracy improves after analysts directly experience an extreme weather event. The effect is strongest for firms with high climate risk, greater asymmetric information, and for more experienced analysts. These findings suggest that weather events prompt analysts to acquire and integrate additional information into their forecasts.
Chapter 2 investigates the link between climate transition risk and credit risk, focusing on firms’ carbon emissions and Moody’s Expected Default Frequencies (EDFs). We find that the Paris Agreement marked a structural shift: after 2015, the correlation between emissions and EDFs turned positive and statistically significant. A decomposition of EDFs shows that increased asset volatility is the primary channel through which transition risk affects credit risk for high‐emission firms.
Chapter 3 examines how climate transition risk shapes bankruptcy outcomes, using a unique dataset linking U.S. bankruptcy cases to environmental indicators. The results suggest that firms facing higher transition risk are more prone to distress and bankruptcy. By exploiting quasi-random judge assignment, we find that judges who are lenient toward carbon-intensive firms are more likely to grant greater debt relief. After bankruptcy, these firms increase emissions and degrade local vegetation, revealing a trade-off between financial restructuring and environmental quality.
Taken together, these three essays provide evidence that both physical and transition climate risks leave measurable footprints on financial decision‐making. They offer new insights into how markets process climate information and how environmental externalities are managed under financial stress.
Chapter 1 explores how exposure to extreme weather events affects equity analysts’ earnings forecasts. Using a novel dataset that links natural disasters to analysts’ office locations across the U.S. from 2000 to 2020, I show that forecast accuracy improves after analysts directly experience an extreme weather event. The effect is strongest for firms with high climate risk, greater asymmetric information, and for more experienced analysts. These findings suggest that weather events prompt analysts to acquire and integrate additional information into their forecasts.
Chapter 2 investigates the link between climate transition risk and credit risk, focusing on firms’ carbon emissions and Moody’s Expected Default Frequencies (EDFs). We find that the Paris Agreement marked a structural shift: after 2015, the correlation between emissions and EDFs turned positive and statistically significant. A decomposition of EDFs shows that increased asset volatility is the primary channel through which transition risk affects credit risk for high‐emission firms.
Chapter 3 examines how climate transition risk shapes bankruptcy outcomes, using a unique dataset linking U.S. bankruptcy cases to environmental indicators. The results suggest that firms facing higher transition risk are more prone to distress and bankruptcy. By exploiting quasi-random judge assignment, we find that judges who are lenient toward carbon-intensive firms are more likely to grant greater debt relief. After bankruptcy, these firms increase emissions and degrade local vegetation, revealing a trade-off between financial restructuring and environmental quality.
Taken together, these three essays provide evidence that both physical and transition climate risks leave measurable footprints on financial decision‐making. They offer new insights into how markets process climate information and how environmental externalities are managed under financial stress.
Version
Open Access
Date Issued
2025-08-22
Date Awarded
2025-11-01
Copyright Statement
Attribution-NonCommercial 4.0 International Licence (CC BY-NC)
License URL
Advisor
Kacperczyk, Marcin
Custodio, Claudia
Publisher Department
Business School
Publisher Institution
Imperial College London
Qualification Level
Doctoral
Qualification Name
Doctor of Philosophy (PhD)