The Impact of Climate Risk on Investment Returns of Listed Companies: Evidence from China

In recent years, as global climate change intensifies and ESG investment concepts gain prominence, climate risk has become a crucial factor for investors and financial markets. Investigating how climate risk is priced in the Chinese capital market is both theoretically and practically important for promoting the sustainable development of China's capital markets and advancing green finance. This study employs natural language processing (NLP) to quantify the proportion of climate risk-related content in the annual reports of listed companies, creating an indicator to assess their climate risk level. The study uses climate risk of listed companies as the explanatory variable and annual stock returns as the dependent variable, applying a fixed-effects model to empirically examine the impact of climate risk on investment returns. The study finds that: first, the climate risk of listed companies shows a clear trend of change over time; second, there is a significant positive correlation between the climate risk of listed companies and investment returns.