Climate Risk and Its Impact on the Cost of Capital—A Systematic Literature Review

Luis Ángel Meneses Cerón (), Aaron van Klyton, Albano Rojas and Jefferson Muñoz
Additional contact information
Luis Ángel Meneses Cerón: Department of Finance, Universidad Cooperativa de Colombia, Popayán 190001, Colombia
Aaron van Klyton: Department of Management, Kean University, Union, NJ 07083, USA
Albano Rojas: Faculty of Economic Sciences, Universidad de San Buenaventura Cali, Cali 760001, Colombia
Jefferson Muñoz: Deparment of Finance, Universidad Antonio José Camacho, Valle del Cauca 760007, Colombia

Sustainability, 2024, vol. 16, issue 23, 1-21

Abstract: As climate change intensifies the frequency and severity of its adverse events, there is growing concern about its impact on the economy, particularly in financial markets and corporate financial management. This study addresses this gap through a systematic literature review in Scopus according to the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) method, aiming to analyse how climate risk affects the Weighted Average Cost of Capital (WACC) and, consequently, corporate investment and financing decisions. The findings reveal that companies with negative environmental profiles face higher capital costs and loan interest rates. The cost of capital is crucial in the fight against climate change, highlighting the need for sustainable financial policies and investments. Therefore, it is essential to implement policy interventions that reduce these costs, which requires a radical transformation of existing financial frameworks, the promotion of innovative instruments, and the strengthening of financial markets through an integrated approach that links climate finance with economic and social development.

Keywords: climate risk; WACC (Weighted Average Cost of Capital); sustainable finance; climate change; financial decisions (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2071-1050/16/23/10727/pdf (application/pdf)
https://www.mdpi.com/2071-1050/16/23/10727/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:16:y:2024:i:23:p:10727-:d:1538420

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().