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Hedging Climate Change News * Robert Engle † Stefano Giglio ‡ Heebum Lee § Bryan Kelly ¶ Johannes Stroebel || Abstract We propose and implement a procedure to dynamically hedge climate change risk. We extract innovations from climate news series that we construct through textual analysis of newspapers. We then use a mimicking portfolio approach to build climate change hedge portfolios. We discipline the exercise by using third-party ESG scores of firms to model their climate risk exposures. We show that this approach yields parsi-monious and industry-balanced portfolios that perform well in hedging innovations in climate news both in sample and out of sample. We discuss multiple directions for future research on financial approaches to managing climate risk. (JEL G11, G18, Q54) * This version: May 7, 2019. We thank Harrison Hong, Andrew Karolyi, and Ross Valkanov; partici-pants at the Climate Finance Workshop at Columbia University, the Climate Finance Conference at Impe-rial College, and the Volatility Institute Conference at NYU Stern; and a number of anonymous referees for helpful comments. The Norwegian Finance Initiative and the Global Risk Institute provided gener-ous grant support. We thank Konhee Chang for outstanding research assistance. Send correspondence to Robert Engle, NYU Stern, 44 West 4th Street, New York, NY 10012; telephone: 212-998-0710. E-mail: rengle@stern.nyu.edu. † NYU Stern and NBER. Email: rengle@stern.nyu.edu ‡ Yale University, NBER, and CEPR. Email: stefano.giglio@yale.edu § NYU Stern. Email: hlee2@stern.nyu.edu ¶ Yale University, AQR Capital Management, and NBER. Email: bryan.kelly@yale.edu || NYU Stern, NBER, and CEPR. Email: johannes.stroebel@nyu.edu 

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