Abstract
Climate change poses significant threats to both the environment and society. A growing body of research acknowledges that firms are exposed to idiosyncratic climate risks; however, the literature remains fragmented, and the mechanisms by which climate change affects firm financial performance are not yet fully understood. This gap limits the ability to interpret and forecast firm performance under climate-related pressures and constrains effective risk management strategies. This paper systematically reviews the cross-disciplinary literature on climate change and firm financial performance. Drawing on this review, we propose a four-stage economic rationale framework illustrating how forward- and backward-looking climate risks influence both short- and long-term financial outcomes. Furthermore, we develop four conceptual models that capture the mediating roles of cost and behavioral changes, as well as the moderating effects of emerging external information and firm responses to climate risks. By accounting for heterogeneity in firm characteristics, geographic contexts, investor types, and market conditions, these models extend the boundaries of how climate change impacts firm financial performance. Our review contributes to a more nuanced understanding of financial performance in the context of climate change and offers insights into how stakeholders and shareholders respond to emerging climate risks. Finally, we identify key directions for future research and offer practical recommendations for firms and their stakeholders to better manage climate risks.
Keywords: Climate change, Firm financial performance, Systematic review, SDG-Sustainable Development Goals