Firm carbon risk exposure and financial stability

Freeman Brobbey Owusu, Mohammad Abdullah, Chi-Chuan Lee and Agyapomaa Gyeke-Dako

Finance Research Letters, 2025, vol. 78, issue C

Abstract: This research investigates the influence of firm-level carbon risk on financial stability. Using a global sample of non-financial firms, we find that carbon risk negatively impacts financial stability. Financial constraints, corporate governance, and environmental innovation moderate this effect. The impact is stronger for firms with low R&D intensity and those in countries with high CO2 emissions, weak rule-of-law, low control of corruption, no carbon regulation, and low environmental regulation. Further tests show stronger effects in developing economies and in the post-global financial crisis and Paris Agreement periods. The findings highlight the need for tailored strategies to manage carbon risks.

Keywords: Carbon risk; Financial stability; Corporate governance; Environmental innovation (search for similar items in EconPapers)
JEL-codes: G32 G33 M14 Q54 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:78:y:2025:i:c:s1544612325004672

DOI: 10.1016/j.frl.2025.107204

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