How environmental media narratives shape the sustainability premium

This paper examines whether environmental narratives constitute an independent and state-dependent pricing channel in equity markets beyond conventional ESG scores and aggregate climate risk measures. Using more than 220 million US news articles, we construct indicators of environmental narrative sentiment and thematic intensity and analyse their effects on equal-weighted and value-weighted ESG portfolio premia. The empirical framework augments the Fama–French five-factor model with explicit climate risk and macroeconomic uncertainty controls and allows for delayed pricing effects. We find that environmental narratives, particularly attention-based measures, exert economically relevant effects on the equal-weighted sustainability premium, even after controlling for standard asset-pricing factors and climate-related risk indices, whereas the corresponding effects are substantially weaker in value-weighted portfolios. In contrast, aggregate ESG and climate risk measures display weak and unstable explanatory power once narratives are accounted for. The effects differ substantially across portfolio weighting schemes, while the lagged specifications provide more limited evidence of persistent delayed effects.