No. 992: Climate-triggered institutional price pressure: Does it affect firms’ cost of equity?
George Skiadopoulos University of Piraeus Department of Banking and Financial Management, and Queen Mary University of London School of Economics and Finance. Cheng Xue Nanjing Agricultural University College of Finance
September 19, 2025
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
J.E.L classification codes: G11; G12; G13; G18; G31; G38; Q54; Q55
Keywords: Climate exposures; Cost of equity; Institutional price pressure; Corporate environmental profiles