This study examines whether the sovereign credit market incorporates expectations of coastal flooding and sea level rise (SLR). The results indicate that medium- and long-term credit default swap spreads increase for sovereigns with a substantial portion of their population vulnerable to ex-ante coastal flooding in response to climate summit news. Predictability tests suggest that the market asynchronously incorporates changing vulnerabilities of regions into its risk assessment with such news, consistent with theories of inattention to information. A real-options model is used to consider debt financing trade-offs associated with sovereign inaction or investment in adaptation capital.

We establish the financial materiality of temperature variability by demonstrating its impact on US firms and investors. A long-short strategy that sorts firms based on exposure earns a market-adjusted alpha of 39 basis points per month. This variability metric is related to aggregate decreases in firm profitability, with asymmetric effects across industries. These outcomes are driven by reductions in consumer demand and labor productivity coupled with changes in media and investor attention. The geographically scalable statistical framework provides a reference for assessing the quantitative effects of climate-related physical risks, offering a metric for improving the disclosure of material climate risks.

This study examines whether biodiversity loss due to chemical contamination is priced in the US equity market. I find that emissions from industrial facilities increase chemical concentrations of lead and decrease vertebrate populations within a 15-kilometer radius of a plant. I identify an undervaluation of this biodiversity loss, as firms emitting pollutants near biodiverse areas experience no additional risk premium compared to the pollution premium. To understand this pattern, I find that firms polluting near biodiversity havens underreport their biodiversity footprint—suggesting difficulties in understanding their own impacts on the environment.