Assessing climate risk and resilience across stocks, ESG portfolios, and REITs: evidence from predictive modelling

Abstract This paper examines the resilience of conventional equities, ESG portfolios, and real estate investment trusts (REITs) to climate-related shocks, with implications for portfolio risk management and sustainable finance. The study contributes to the literature by integrating climate risk into asset-level risk assessment, moving beyond purely econometric analyses to emphasize practical applications for stress testing and risk governance. Realized volatility measures of temperature anomalies and extreme precipitation are constructed to capture the episodic nature of climate events. Predictive regression models accounting for persistence, endogeneity, and conditional heteroscedasticity are employed, with forecast performance evaluated in-sample and out-of-sample using RMSE, Campbell–Thompson, and Clark–West tests. Results indicate that conventional equities are most sensitive to temperature shocks, ESG portfolios exhibit greater exposure to precipitation events, and REITs show relative stability, suggesting a potential moderating role in diversified portfolios. The findings offer asset-specific parameters for scenario-based risk assessment and underscore that climate resilience is both state-dependent and asset-specific rather than uniform. By linking these patterns to asset pricing and adaptive risk management, the study provides insights for investors, portfolio managers, and policymakers, while highlighting directions for future research on climate-informed financial strategies.