Climate risk and stock performance: evidence from UK climate-sensitive sectors

This study examines how physical climate risk, transition climate risk, and climate-risk dispersion affect stock returns across climate-sensitive sectors in the UK. Using monthly sector-level indices and forward-looking, text-based risk measures, we find that lagged increases in physical and transition climate risk are associated with lower subsequent returns, indicating delayed pricing. In contrast, the real estate sector responds positively to transition risk, reflecting adaptation incentives from the low-carbon transition. Moreover, greater dispersion in climate-risk indicators exerts an additional negative effect on stock performance and varies systematically across seasons.