Research purpose: This study investigates the effect of firms’ climate risk on firm value and examines whether ESG practices moderate this relationship in emerging and frontier markets.
Research motivation: Climate risk has become a critical concern for firms in vulnerable economies where exposure to extreme weather events is high, but insurance mechanisms and safeguards remain limited. Although prior studies link climate risk to firm value, evidence remains fragmented and concentrated in developed markets, creating a need for more context-specific research.
Research design, approach, and method: We analyze 1,683 firm-year observations from 561 firms across Vietnam, India, the Philippines, South Africa, and Malaysia during 2022–2024. To estimate causal effects, we adopt a Double Machine Learning (DML) framework that integrates Random Forest and XGBoost, allowing us to account for nonlinearity and control for confounding bias.
Main findings: The results show that climate risk significantly reduces firm value, and this negative impact is amplified when interacted with ESG scores. These findings highlight the potential double-edged role of ESG in high-risk environments.
Practical/managerial implications: Our results emphasize the importance of embedding ESG practices into firms’ financial strategies and technological innovation efforts. Moreover, they call for stronger regulatory frameworks and policy support to improve market resilience to climate-related risks.