Climate risk and corporate carbon emissions: a cross-country study

Khaled Ghozzi, Hamza Nizar, Faten Lakhal and Khaled Hussainey

International Journal of Managerial Finance, 2026, 1-33

Abstract: PurposeThis study examines whether country-level climate risk influences corporate carbon emissions. It also investigates how financial slack shapes firms’ responses to climate risk.Design/methodology/approachUsing a sample of 10,834 firm-year observations from 42 countries over the period from 2010 to 2024, we applied regression models on panel data estimated with robust standard errors. We also addressed endogeneity using propensity score matching, two-stage least squares and difference-in-differences approaches.FindingsThe findings show that firms exposed to climate risk exhibit higher carbon emissions, consistent with the resource-constraint perspective. Indeed, climate-related risks can hinder corporate environmental performance by limiting the financial capacity required to implement sustainable carbon reduction strategies. This positive association is significantly weaker among firms with greater financial flexibility, proxied by long-term and short-term financial slack, and significantly stronger among financially constrained firms. This positive association is also attenuated in the post–Paris Agreement period (2016 onward), among firms with a sustainability committee and among those operating under more stringent environmental policy regimes. These results point to institutional pressure and internal governance as additional channels that offset the positive effect of climate risk on carbon emissions.Originality/valueThis study adds to the literature on the consequences of climate risk by providing new insights into the climate risk–carbon emissions relationship in a cross-country study. It also identifies financial flexibility, sustainability governance and institutional pressures (environmental policy stringency and the Paris Agreement) as mitigating channels. This offers valuable guidance for policymakers by highlighting the role of financial capacity, corporate governance and supportive policy frameworks in enhancing firms’ resilience to climate-related shocks and facilitating the transition to a low-carbon economy.

Keywords: Climate risk exposure; Carbon emissions; Financial flexibility; Paris agreement; Sustainability committee; Environmental policy stringency (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmfpp:ijmf-03-2026-0189

DOI: 10.1108/IJMF-03-2026-0189

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