A New Approach to Assess Climate Change Risk in Coal-Power Generation Sector

We propose a novel approach to identify and evaluate climate change risk in coal-power generation firms. This approach includes 92 indicators to assess climate change exposure from green transition, physical, ESG (Environmental, Social, and Governance), and financial dimensions. Based on these comprehensive risk exposure metrics, we calculate climate change risk exposure indices and categorize them into low, medium, and high levels. We implement this approach in the coal-power generation firms in China and obtain a series of insightful findings. For example, state-owned firms exhibit lower ESG risk and lower levels of technology risk. Firms in the eastern regions face lower risks related to fire, earthquake, and flooding but are more susceptible to hurricane risks. Shandong, Jiangsu, Shaanxi, Beijing, and Zhejiang demonstrate the highest overall transition risk. Guangxi, Yunnan, Sichuan, Hubei, and Hebei are exposed to the highest overall physical risk. Zhejiang, Inner Mongolia, Jiangsu, Shandong, Liaoning, and Anhui have the highest ESG risk. Firms in Inner Mongolia, Heilongjiang, Liaoning, Jilin, and Shandong are exposed to high financial risk, etc. Our findings generate practical implications for corporate managers to evaluate and integrate climate change risk into business strategies and policymakers to promote sustainable growth in the economy.