Extreme temperatures and the profitability of large European firms

Gian Pietro Enzo Bellocca and Maria Pilar Poncela Blanco

DES - Working Papers. Statistics and Econometrics. WS from Universidad Carlos III de Madrid. Departamento de Estadística

Abstract: In this paper, we analyze the impact of temperature exposure on the earnings per share of large European firms over the 21st century. Our findings reveal that earnings are sensitive to extreme temperatures across a large proportion of sectors. Depending on the sector and quarter, exposure to extreme temperatures can have either a positive or negative impact on profitability. Our analysis shows a greater percentage of sectors affected in Europe compared to the US, likely due to Europe's broader temperature variability from the northern Baltic to the southern Mediterranean regions. We observe that most sectors experience effects during the milder seasons of spring and autumn, being positive in most cases. The lack of a clear negative effect of extreme temperatures over firm's profitability points out one of the reasons why it is so difficult to fight against climate change, while being harmful, it can be profitable. Additionally, we highlight a concerning trend regarding a steady increase in European investments in sectors that are solely negatively impacted by extreme temperatures, which grew from around 16% in 2015 to over 23% in 2022.

Keywords: Climate; change; Earnings; per; share; Firm; performance; Physical; risk; Temperature; exposure (search for similar items in EconPapers)
JEL-codes: C23 G12 G14 Q54 (search for similar items in EconPapers)
Date: 2024-07-24
New Economics Papers: this item is included in nep-eec and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:cte:wsrepe:44217

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