This study investigates the impact of climate change risks and corporate sustainability initiatives on stock returns and firm value. It addresses the gap in traditional asset pricing models by integrating climate risk factors and examines the interplay between corporate sustainability efforts, firm valuation, and risk-adjusted stock returns. Specifically, we explore the effects of climate change risks and corporate sustainability initiatives for climate change and environmental protections on stock returns and firm value. The primary motivation of this paper is four-fold. Firstly, the traditional asset pricing model focuses essentially on one risk factor, i.e., the market-risk premium factor. As the global climate crisis intensifies, corporations face increasing vulnerabilities stemming from physical, transition, and liability risks. Given that the global climate crisis is intensifying and there are rapid environmental changes, we can no longer ignore the impact of climate change and the environmental impact on asset pricing. Corporations face increasing vulnerabilities stemming from physical, transition, and liability risks. Secondly, although many studies have been undertaken on corporate social responsibility that include environmental variables, few studies have explored simultaneously the interplay of corporate climate risks, corporate sustainability initiatives, and firm value. To fill a gap in the academic literature, this paper focuses on empirically examining the simultaneous effects of corporate sustainability and climate change risks on firm value, and risk-adjusted stock returns. This paper contributes to several strands of literature, i.e., corporate sustainability, asset firm value, investment risk and returns, by exploring the complex interactions among multiple causal relationships. By inserting the climate risk factor into the traditional asset pricing model, we contribute to the asset pricing literature as well as corporate sustainability literature. The findings of this research may shed light on investment strategies that could adapt to environmental and climate change.