Impact of Climate Risk on the Financial Performance and Financial Policies of Enterprises

Abstract

In this study, The Global Climate Risk Index, a global climate risk score, along with firm-level data are used to investigate how climate risk affects corporate financial performance and financial policy in various nations. To evaluate the impact of climate risk on various parts of a firm, this study uses the capabilities of SPSS (version: 28.0.1.1(15)) to perform correlation and regression analysis between climate risk indicators and the firm’s operational data. We obtained financial information from the Bloomberg database for companies in 37 different countries from 2017 to 2021, including return on assets, cash from operations, sales growth, short-term debt, long-term debt and short- and long-term debt. This is combined with a climate risk index to analyze the impact of climate risk on companies in different countries. The financial performance of a firm is found to be adversely, but not significantly, associated with climate risk in this study using correlation and regression analysis, whereas the long-term debt of the company is found to be favorably related to climate risk. From this investigation, the following findings can be derived. A lower returns on assets is the indicator of the comparatively poor financial performance of businesses in nations with increased climate risk. Businesses in nations with greater climate risk typically retain more long-term debt. Companies in nations with lower climate risk, on the other hand, typically retain less long-term debt. Lastly, this study contributes to the understanding of how climate risk affects different countries and how climate risk affects corporate financing strategies.