Factors influencing the perception of exposure to climate risks: Evidence from the world’s largest carbon-intensive industries

Abstract

Tackling climate change requires the effective participation of all and should not be the exclusive responsibility of the public sector. The industrial sector is responsible for the overwhelming majority of emissions and needs to recognize its responsibility and contribute to mitigating the problem. Climate change and its impacts pose challenges with relevant economic implications that require a new stance on the part of companies. They need to assess and understand their exposure to climate events and develop processes to identify, assess, and respond to climate risks. This study’s primary purpose is to provide an in-depth empirical analysis of the potential underlying variables influencing companies’ perceptions of exposure to climate risks. The research was conducted over a three-year period, based on 36 of the most carbon-intensive industries in the world, located in 15 countries. Evidence shows that companies feel more threatened by regulatory climate risks than physical and market risks regardless of the region. However, companies located in Europe have a greater perception of exposure to regulatory risks than companies in other regions, followed by BRICS’ companies. Perception has increased over the years in Europe. The modeling was done through a time-series cross-section-based analysis. To guarantee quality, precision, and consistency, the modeling was done using three models. The first regression model (Model 1) with panel data without robustness and two other models with verification of robustness, notably the robust covariance matrix White estimators (Model 2) and Driscoll and Kraay (Model 3) models. The evidence points out that “Climate regulation,” “Age,” “Profitability” and “Indebtedness” are the potential variables that influence the company’s perception of exposure to climate risks.