Engel et al (2018)

Engel, Robert, Stefano Giglio, Heebum Lee, Bryan T. Kelly, and Johannes Stroebel. “Hedging Climate Change News.” Yale ICF Working Paper No. 2019-02, January 2019.

From the author’s abstract: “We propose and implement a procedure to dynamically hedge climate change risk. To create our hedge target, we extract innovations in climate news series that we construct through textual analysis of high-dimensional data on newspaper coverage of climate change. We then use a mimicking-portfolio approach to build climate change hedge portfolios using a large panel of equity returns. We discipline the exercise by using third-party ESG scores of firms to model their climate risk exposures. We show that this approach yields parsimonious and industry-balanced portfolios that perform well in hedging innovations in climate news both in sample and out of sample.”

Link: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3317570