Geopolitical risk and firm climate change risk

This study examines the impact of geopolitical risk on firm-level climate change risk. Using a dataset of 56,601 firm-year observations from 40 countries over the period 2004 to 2022, we document that increased geopolitical risk increases firms' climate change risk. Our results remain consistent across alternative proxies and after addressing endogeneity concerns through 2-stage least squares and entropy balancing. We find the effect to be more pronounced for firms facing higher cash flow volatility, financial constraints and leverage. Our findings provide valuable insights for policymakers and corporate managers in formulating resilient strategies during times of geopolitical conflict.