Impact of Physical Climate Risk on Corporate Environmental Action: Global Evidence From Listed Firms

As physical climate risk becomes more severe, firm operation activities are greatly influenced. Many studies have examined strategies related to corporate social responsibility, but few have investigated firms' environmental actions. Previous research has found that physical climate risk can increase corporate social responsibility, which is a multifaceted construct. However, the extent to which physical climate risk influences their environmental actions remains unclear. Using global physical climate risk data and firms' carbon emissions, we find that companies exposed to physical climate risk tend to reduce their carbon emissions. Additionally, under physical climate risk, firms tend to choose environmental innovation and adopt an asset-lightening strategy, which drives carbon emissions reduction. Results also show that firms in countries with more insurance penetration and import dependence reduce the pressure on firms to take environmental actions facing physical climate risk. In contrast, countries with lower endowment, higher income, and stringent climate legislation show carbon emissions reduction effects. At the firm level, firms in carbon-intensive industries, those of larger scale, and those with superior environmental governance demonstrate more significant carbon emissions reduction in response to physical climate risk. These findings suggest that policymakers should pay attention to corporate carbon reduction effects facing physical climate risk, which are conditional on the country and firm level conditions.