Journal of Financial and Quantitative Analysis Vol. 61 No. 4 2026

Climate-Triggered Institutional Price Pressure: Does It Affect Firms’ Cost of Equity?

George Skiadopoulos¹; Cheng Xue²

¹ University of Piraeus, Department of Banking and Financial Management Queen Mary University of London, School of Economics and Finance · ² Nanjing Agricultural University, College of Finance

Abstract

We document that climate-triggered institutional portfolio rebalancing affects S&P 500 firms’ cost of equity through climate change price pressure (CCPP). Using a demand-based asset pricing framework, we estimate firm-level CCPP from physical and transition exposures over 2005–2021. A one-standard-deviation intensification of CCPP raises the cost of equity by up to 6% of its average, with banks and insurers as the main drivers. Yet firms do not subsequently improve environmental performance, indicating that the statistically significant effect of CCPP on cost of equity is ineffective to alter corporate behavior. Our CCPP metrics can help policymakers and investors design targeted environmental strategies.

DOI

10.1017/s0022109025102226

Volume

61

Issue

4

Pages

1695-1722

Language

en

Sources

crossref openalex

Cite

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