Climate change exposure in uncertain times: A text-based approach

Viput Ongsakul, Pattanaporn Chatjuthamard, Pandej Chintrakarn and Pornsit Jiraporn

International Review of Economics & Finance, 2025, vol. 100, issue C

Abstract: Taking advantage of an innovative text-based approach to assess firm-specific climate change exposure, we examine how economic policy uncertainty (EPU) influences firm-level climate change vulnerability. Based on a large sample of U.S. firms with over 60,000 observations spanning almost two decades, our analysis shows that greater EPU raises climate change exposure significantly. Specifically, a rise in EPU by one standard deviation results in an increase in climate change exposure by 2.8 %–4.9 %. Our findings are consistent with the notion that, during uncertain times firms have more difficulty formulating plans to cope with climate change, ultimately resulting in more serious climate change vulnerability. Further analysis validates the results, i.e., propensity score matching, entropy balancing, an instrumental-variable analysis, and using Oster's (2019) approach to assess coefficient stability. Furthermore, the effect of EPU on climate change exposure is more pronounced for firms paying larger dividends but is weaker for firms investing more in R&D. In addition, we show that the effects of EPU on various dimensions of climate change exposure can differ. Finally, we document that greater EPU makes companies more vulnerable to more diverse areas of climate change exposure.

Keywords: Climate change; Economic policy uncertainty; Climate risk; Uncertainty; Textual analysis; Machine learning (search for similar items in EconPapers)
JEL-codes: E60 E66 G32 Q54 Q56 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:100:y:2025:i:c:s1059056025002461

DOI: 10.1016/j.iref.2025.104083

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