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Climate Postures.

Climate-induced industrial transformations should cause sectors to undergo competitive market sorting into those optimally positioned to remain in the status quo economy and those optimally undertaking transition opportunities. Drawing inspiration from Roy (1951) – where the best fishers focus on fishing, and the best hunters focus on hunting – we define climate postures as the focus of firm climate efforts, where those in the status quo economy focus on costs, and those undertaking opportunities focus on transition. We identify the existence of climate postures in the industrial base sectors by inferring signals from managers’ manual editing of ESG data and the accompanying market reaction. We find priced evidence for both optimal status quo and transition opportunity firms in both energy and industrials/basic materials sectors. The sorting following the signal of a climate posture towards transition opportunities yields a 2.9% excess two-week return for European energy companies and a 1.6% return for industrials in North America. Our design also identifies across-sector market penalties in signals of climate costs.

Cauthorn, T., Drempetic, S., Hoepner, A.G.F., Klein, C., Morse, A., 2024. Climate Postures. SSRN Electronic Journal TBD.