Climate Risk and Capital Structure

Edith Ginglinger, Quentin Moreau

2023 | Academic | Climate, Companies, Risk & Performance

We use firm-level data that measure forward-looking physical climate risk to examine the impact of climate risk on capital structure. We find that greater physical climate risk leads to lower leverage in the post-2015 period, i.e., after the Paris Agreement and the first step of standardization of disclosure of climate risk information. Our results hold after controlling for firm characteristics known to determine leverage, including credit ratings.