Geopolitical risk and firm climate change risk

Noraimah Farah Rahim; Zunaidah Sulong; Mohammad Abdullah; G M Wali Ullah

doi:10.1016/j.frl.2025.108212

Geopolitical risk and firm climate change risk

Noraimah Farah Rahim, Zunaidah Sulong, Mohammad Abdullah, G M Wali Ullah

College of Business, Government and Law

Research output: Contribution to journal › Article › peer-review

2 Citations (Scopus)

Abstract

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.

Original language	English
Article number	108212
Number of pages	10
Journal	Finance Research Letters
Volume	85
Issue number	Part D
DOIs	https://doi.org/10.1016/j.frl.2025.108212
Publication status	Published - Nov 2025

Keywords

Geopolitical risk
Climate risk
Cash flow volatility
Financial constraints
Leverage

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1016/j.frl.2025.108212Licence: In Copyright

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title = "Geopolitical risk and firm climate change risk",

abstract = "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.",

keywords = "Geopolitical risk, Climate risk, Cash flow volatility, Financial constraints, Leverage",

author = "Rahim, {Noraimah Farah} and Zunaidah Sulong and Mohammad Abdullah and {Wali Ullah}, {G M}",

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T1 - Geopolitical risk and firm climate change risk

AU - Rahim, Noraimah Farah

AU - Sulong, Zunaidah

AU - Abdullah, Mohammad

AU - Wali Ullah, G M

PY - 2025/11

Y1 - 2025/11

N2 - 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.

AB - 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.

KW - Geopolitical risk

KW - Climate risk

KW - Cash flow volatility

KW - Financial constraints

KW - Leverage

U2 - 10.1016/j.frl.2025.108212

DO - 10.1016/j.frl.2025.108212

M3 - Article

SN - 1544-6131

VL - 85

JO - Finance Research Letters

JF - Finance Research Letters

IS - Part D

M1 - 108212

ER -

Geopolitical risk and firm climate change risk

Abstract

Keywords

UN SDGs

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