Climate-related risks, firm performance and role of risk reserve funds: empirical evidence in Vietnam

Abstract

This study examines how climate-related risks and risk reserve funds affect the financial performance of Vietnamese-listed firms in climate-sensitive sectors. Using data from 464 firms between 2003 and 2022 and employing dynamic estimation methods, the research reveals that climate change indicators, such as environmental protection taxes, extreme weather events, temperature fluctuations, and carbon emissions, negatively impact firm performance. The study also finds that increased rainfall benefits these firms. The effects of most climate indicators, except rainfall, became more pronounced after the 2015 Paris Agreement (COP 21). Additionally, firms with risk reserve funds are better equipped to mitigate climate change risks. These findings were validated through alternative econometric methods and different dependent variables. The results underscore the urgent need for corporate managers, investors, and policymakers to incorporate climate risks into decision-making processes, fostering the development of strategies to address the financial impacts of climate change.