Does political risk exacerbate climate risk? Firm-level evidence

Abstract

Using machine-learning-based measures for political and climate risks derived from corporate conference calls, we discover a link between the two in a large sample of US firms from 2002 to 2021. Our findings suggest that firms facing higher political risk are more susceptible to climate risk. Additionally, we find that a firm's emitter category industry classification and exposure to environmental litigation can exacerbate this situation, while managerial ability helps reduce the impact. Furthermore, political lobbying and donations effectively check corporate climate risk, but only under non-partisan conditions. Importantly, our findings are robust to concerns of reverse causality, sample selection bias, and measurement errors.