We're building a multi-factor model for climate risk by adding an additional factor for carbon risk on top of a Fama and French 3 factor model. This is open source at https://github.com/opentaps/open-climate-investing
We've tested the additional carbon risk factor and found that it increases the R2 of the regressions: https://github.com/opentaps/open-climate-investing/issues/4
Is this sufficient to say that the additional factor has improved the predictive power of the model? Or should there be other tests done?