The Impacts of Climate Change Risks on Financial Performance: Evidence from Listed Manufacturing Firms in Vietnam

Abstract

Adverse climatic conditions increase greater systematic risk for companies throughout the global economy. Only a few studies directly examine the consequences of climate-related risk on financial performance of publicly-listed firms across the globe especially in Vietnam. The manufacturing industry is one of the sectors most significantly affected by climate change because it is characterized by high exposure, sensitivity and substitution. Research purpose: This study focuses on examining the impact of climate change risks on the financial performance of manufacturing enterprises in Viet Nam. Research motivation: Adverse climatic conditions increase greater systematic risk for companies throughout the global economy. Only a few studies directly examine the consequences of climate-related risk on financial performance of publicly-listed firms across the globe especially in Vietnam. The manufacturing industry is one of the sectors most considerably affected by climate change because it is characterized by high exposure, sensitivity and substitution. Research design, approach and method: This study uses both quantitative and qualitative methods, applying an econometric regression model to examine the relationship between climate change risk and firm performance through control variables. After that, we develope a hypothesis and methodology to analyze how climate change can affect financial performance. The data is obtained from the financial statements of 144 listed companies between 2015 and 2019. Main findings: Empirical analysis shows that there is a correlation between climate change and the financial performance of manufacturing companies. The results indicate that climate change has a negative impact on financial performance. Humidity risk has a significant and negative correlation with the financial performance of companies. However, some independent variables such as temperature, sunshine hours, or rainfall show negligible impacts on financial performance. Practical/ managerial implications: This research will help businesses and practitioners be aware of the direct impact of climate change on firm performance. Therefore, in order to cope with the climate change risks, manufacturing enterprises need to develop action plans in response.