Climate Change, Transition Risk Drivers and Financial Risk

Dear Colleagues,

Climate change and global warming have been receiving increasing awareness over the last decade. According to the Intergovernmental Panel on Climate Change (IPCC, 2021), the continued anthropogenic emission of GHGs in the atmosphere is the main cause of global warming, leading to extreme weather events, including higher sea levels, droughts and floods, hurricanes, cold snaps and heat waves, severely affecting economic outcomes. Given the detrimental consequences of climate change, a significant body of research examines the effect of climate change on economic activity, whereas policymakers around the world have been focused on understanding the mechanisms of climate change, aiming to design and implement the appropriate climate policies.

Within this context, the introduction of any societal changes including changes in public sector policies (e.g., energy transition policies, pollution control regulation, policies on resource conservation and public subsidies), innovation and changes in the existing technologies (i.e., green innovation or introducing energy-saving and low-carbon transportation technologies that help reduce GHG emissions improving economic resilience to climate change) are considered transition risk drivers, as they can create significant financial risks associated with the shift towards a low-carbon economy. In particular, the introduction of government legislation with the aim to generate and accelerate the transition towards a low-carbon economy will cause changes in production, sales, operational costs, current profits and future profitability expectations, which in turn, could potentially lower the firm's earnings and creditworthiness, restricting its access to capital. Further, any advancements in innovation and technology aiming to enhance the efforts to manage climate change could also increase the firm’s financial risk. Adjustments in existing technologies, investments in green innovation, or reliance on outdated carbon-intensive technologies entail high costs for the firms, negatively affecting their competitiveness, current profits, future earnings and creditworthiness, which in turn could limit their access to funding.

Despite the significant body of literature aiming to uncover the consequences of government regulations, innovation and technology associated with the transition towards a low-carbon economy, on economic outcomes, the effect on the firm’s financial risk has not been fully understood or explored. This Special Issue invites papers on theoretical and empirical research on the effects of government policies, innovation and technology aiming to enhance the transition towards a low-carbon economy (transition risk drivers) on the firm’s financial risk. We welcome research that explores, but is not limited to, the following topics:

• What are the effects of market-based and non-market-based government policies aiming to mitigate the effects of climate change on the firm’s financial risk?
• How can the introduction of innovation and green innovation affect the firm’s earnings and access to capital?
• What are the consequences of utilizing carbon-intensive technologies or green technologies on the firm’s competitiveness and future earnings? 
• How can financial and political institutions affect the impact of the transition risk drivers on the firm’s financial risk?
• What is the role of the firm and industry characteristics on the relationship between transition risk drivers and the firm’s financial risk?

Reference

Intergovernmental Panel on Climate Change (IPCC), (2021). www.ipcc.ch.

Dr. Ioanna Stylianou
Dr. Michael Christofi
Dr. Nikos Fatouros
Guest Editors

Manuscript Submission Information

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• climate change
• transition risk
• financial risk
• sustainable finance
• climate policy