How Does Climate Risk Affect the Cost of Debt in Chinese A-Share Listed Firms? Evidence from Financial and Non-Financial Transmission Channels

Unofficial AI-generated summary based on the public title and abstract. Not an official translation.

🔬研究者:Provides causal evidence on climate risk and debt costs in an emerging market, with a novel dual-channel framework and rigorous endogeneity corrections.

🏢実務担当者:Highlights that improving climate-related disclosure quality can lower financing costs, informing corporate sustainability reporting strategies.

🏛政策担当者:Suggests that policies promoting high-quality climate disclosure and ESG integration can reduce the cost of capital for firms, supporting the low-carbon transition.

Drawing on a panel of Chinese A-share listed firms covering 2007 to 2024, we construct a firm-level measure of climate risk exposure based on textual analysis of annual reports. Employing a three-way fixed effects model combined with endogeneity corrections and a battery of robustness checks, we empirically identify the causal effect of climate risk on the cost of debt, as well as its underlying transmission mechanisms and heterogeneous boundary conditions. Our analysis yields three core findings. First, climate risk exerts a statistically significant and economically meaningful positive effect on the cost of debt, indicating that greater climate risk exposure amplifies firms’ debt financing burdens. Second, the impact operates through two parallel transmission channels. On the one hand, climate risk erodes corporate financial fundamentals by disrupting production and operations and elevating default risk. On the other hand, it damages non-financial reputation by triggering downgrades in Environmental, Social, and Governance (ESG) ratings and weakening long-term financing credibility. Third, the relationship between climate risk and the cost of debt is significantly moderated by firm- and industry-level characteristics: high-quality information disclosure attenuates the adverse financing impact of climate risk, while affiliation with heavily polluting industries strengthens this positive association. These findings remain robust to alternative measures of climate risk and the cost of debt, alternative clustering specifications, high-dimensional interactive fixed effects, and subsample tests with restricted sample windows. To address endogeneity concerns stemming from reverse causality and omitted variable bias, we adopt two complementary identification strategies: using one-period lagged values of the core explanatory variable and conducting instrumental variable estimation via two-stage least squares (2SLS). Estimates from both approaches remain statistically and economically consistent with our baseline results. Further heterogeneity analyses show that the cost-increasing effect of climate risk is more pronounced for firms without ESG fund ownership, non-state-owned enterprises (non-SOEs), and firms located in non-eastern regions of China. Overall, this study provides novel firm-level evidence on the microeconomic consequences of climate risk in emerging economies, develops a dual transmission framework integrating financial fundamentals and non-financial reputation, and offers actionable implications for policymakers, financial institutions, and firms to improve climate risk governance and optimize the financing environment amid the low-carbon transition.

• semanticscholar https://www.mdpi.com/2227-7072/14/8/202/pdf?version=1785818360first seen 2026-08-09 05:54:42