Essays on the Price Effect of Climate Risks in Private Infrastructure

This thesis examines how climate risks are incorporated into the price effect of private infrastructure assets. The price effect is defined as the sum of capitalization in valuation levels, ex ante, and pricing adjustment in realized returns, ex post. While climate finance research has documented climate-related pricing effects in public markets with continuous price discovery, far less is known about how these risks are reflected in private, appraisal-based markets. Private infrastructure assets are long-lived, capital-intensive, and geographically immobile, making them particularly exposed to transition policy changes, physical climate conditions, and shifts in climate-related narratives. The central research question is therefore how objective climate risks and informational climate signals affect pricing dynamics in unlisted infrastructure markets, and through which economic channels these effects occur.

The first chapter investigates whether transition and physical climate risks are incorporated into valuation multiples and realized returns, and whether policy credibility conditions these effects. The analysis uses proprietary project-level financial and transactional data covering 871 special purpose vehicles across 25 countries from 1999 to 2024. Transition exposure is measured using a Climate Policy Stringency Index, while physical exposure is proxied by country-level temperature anomalies. Panel regressions distinguish between valuation responses embedded in appraisal updates and realized return adjustments occurring between appraisals. The findings show that higher policy stringency is associated with lower valuation multiples, consistent with discount-rate reassessment rather than systematic cash-flow revision. Policy tightening shocks are associated with negative realized return adjustment when tightening is not fully anticipated. Importantly, policy credibility conditions the timing and incidence of adjustment: in more credible regulatory environments, climate risk is incorporated primarily through capitalization in valuation levels, while realized return reactions are attenuated. Physical risk exerts a negative but comparatively weaker average effect, although development-stage, transitional, and carbon-intensive assets display greater sensitivity.
The second chapter examines whether climate-related media sentiment provides incremental pricing information beyond policy and physical measures. A physically weighted climate sentiment index is constructed using global news data, combining narrative direction, emotional intensity, and thematic breadth, with greater weight assigned to physical disaster themes. Merged with the proprietary infrastructure dataset for 2015–2023, the empirical framework mirrors that of the first chapter. Results indicate that a more constructive physical narrative environment is associated with higher valuation multiples, while realized returns exhibit limited systematic adjustment. Climate sentiment complements objective risk measures and operates predominantly through discount-rate channels. Physical disaster narratives dominate transition rhetoric in explaining valuation dynamics, underscoring the importance of perceived tail risk for immobile assets.
Overall, the thesis concludes that climate risks in private infrastructure markets are reflected predominantly through capitalization in valuation levels, with selective pricing adjustment when shocks are unexpected. Policy credibility, asset characteristics, and narrative salience jointly shape how climate exposure enters private market prices, providing a structured framework for interpreting climate-driven pricing dynamics in long-horizon infrastructure investment.