Measurement of daily climate physical risks and climate transition risks faced by China's energy sector stocks

Abstract

This paper introduces a novel approach for assessing the daily climate transition risk level in China and quantifying the climate physical risk associated with various fossil energy stocks. These measurements offer valuable data sources for empirical research in this field. In assessing climate transition risk, this paper employs the Term Frequency-Inverse Document Frequency (TF-IDF) method to construct a glossary of China's climate transition terminology. It also utilizes the multi-scale moment difference method to evaluate China's daily climate transition risk from 2000 to 2022. Climate physical risk measurement primarily focuses on boundary projection and base period shifting. The analysis reveals that: (1) China's climate policy documents emphasize areas such as energy conservation, meteorology, renewables, low-carbon solutions, and carbon emissions. Notably, meteorology-related provisions, including those for typhoons, rainfall, and drought, indicate heightened government attention to climate disaster response. (2) The research identifies periods of increased climate transition risk levels in 2004–2008 and 2017–2019, with decreases in 2011–2015 and 2020–2022. (3) The distribution of climate physical risk levels in China's fossil energy stocks is right-skewed, with the range [0.86, 0.88] representing the predominant distribution interval and concentration of these risks. The findings of this study can assist policymakers and investors in making informed decisions for market management and investments based on climate risk scenarios.