Given that climate change is widely expected to become increasingly important to investors, in this CUHK Business School Research White Paper, we shall seek to examine how institutional and retail investors perceive the risks and opportunities associated with climate change and how they will react in response.

For example, with extreme weather becoming more frequent, people are becoming better aware of the seriousness of climate change after personally experiencing it. Can this translate into different performances on the stock market for companies depending on their carbon footprint?

Within the market, institutional investors are a segment whose decisions can have a great impact on the overall sentiment. How will these large-scale investors react to global warming? And while some investors adjust their investment decisions in response to climate change, companies also face mounting pressure to become more environmentally friendly. Can climate risks really affect the valuation of a firm on the stock market, and how does this translate into its business decisions on the operational level?

Finally, previous studies have shown that climate change does affect the portfolio choices of institutional investors, but there is little information about its impact on the retail side. If companies with high carbon emissions come under pressure from investors, what happens to their employees? Do families working for high-emission industries face additional risk to their income streams and would they change their investment behaviours as a result?

We shall seek to answer these questions in the following sections of this white paper.