Impact of climate risk on financial performance – evidence from select energy companies from select G-20 countries
International Journal of Energy Sector Management
ISSN: 1750-6220
Article publication date: 23 July 2024
Abstract
Purpose
The recent meeting of G-20 world leaders, held in New Delhi, in 2023, highlighted that the physical effect of climate change has considerable macro-economic costs at the national and global levels and they have also pledged to accelerate the clean, sustainable and inclusive energy transition along a variety of pathways. Climate change could pose various emerging risks to the firm’s operational and financial activities, specifically for those which are belonging to the energy sector. Thus, this study aims to investigate the impact of climate risks on the financial performance of select energy companies from G-20 countries.
Design/methodology/approach
The study considered 48 energy companies from G-20 countries as the sample for the period of 2017 to 2021. To measure the climate change-related physical risks, the study has considered the ND-GAIN climate vulnerability score and the firm’s financial performance has been measured by return on assets, return on equity, return on capital used and price-to-book ratio. To examine the impact of climate risks on the financial performance of the sample companies, the authors have used pooled ordinary least squares (OLS) and fixed/random effect regression analysis and required data diagnosis tests are also performed.
Findings
The empirical results suggested that climate risks negatively impacted the financial performance of the sample companies. The market performances of the firms are also being impacted by the physical climate change. The results of panel data regression analysis also confirmed the robustness of the empirical results derived from the pooled OLS analysis suggesting that firms that operated in a less climate-risky country, financially performed better than the firms that operated in a more climate-risky country.
Practical implications
The paper has significant practical implications like it could be helpful for the policymakers, investors, suppliers, researchers and other stakeholders in developing deeper insights about the impact of climate risks on the energy sectors from an international perspective. This study may also help the policymakers in developing policies for the management of climate risk for the energy sector.
Originality/value
This study adds insights to the existing literature in the area of climate risks and firm’s financial performance. Moreover, this may be the first study that attempts to evaluate the impact of climate risks on the financial performance of select energy companies from the G-20’s perspective.
Keywords
Acknowledgements
Authors’ contributions: All the authors contributed to the completion of the present study, from conceptualization to the concluding remark. All authors read and approved the final manuscript.
Availability of data and materials: The data sets used and analysed during the current study are available upon reasonable request.
Declarations: Ethics approval and consent to participate: not applicable.
Consent for publication: Not applicable.
Competing interests: The authors declare that they have no competing interests.
Citation
Bauri, S., Mondal, A. and Fatma, U. (2024), "Impact of climate risk on financial performance – evidence from select energy companies from select G-20 countries", International Journal of Energy Sector Management, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJESM-11-2023-0018
Publisher
:Emerald Publishing Limited
Copyright © 2024, Emerald Publishing Limited