Climate change reshapes business and finance: new insights on risks, investments, and digital assets

Background and Motivation

Climate change is no longer solely an environmental concern but a defining force in global business strategy, finance, and governance. As organisations worldwide face increasing physical and regulatory climate risks, understanding how these factors influence corporate behaviour, investment decisions, and market stability has become critical. This special issue of China Finance Review International brings together eight pioneering studies to explore the multifaceted relationship between climate change and business. The collection addresses urgent questions about how firms access capital, manage risk, leverage opportunities, and navigate policy shifts in an era of climate uncertainty.

Methodology and Scope

Rather than presenting a single study, this editorial synthesises findings from a diverse set of empirical and theoretical papers. Research methods include quantitative analysis of firm-level data, textual analysis of corporate reports, sentiment modelling, and macroeconomic policy evaluation. Geographically, studies span emerging Asian economies, China, and global markets. Thematically, the issue examines state capital influence, regulatory impacts, climate opportunity exposure, ESG performance, policy uncertainty, and the intersection of climate risk with cryptocurrency markets.

Key Findings and Contributions

• State Capital & Regulation: State ownership in firms significantly boosts environmental investment and ESG performance in China. Environmental regulations can initially suppress corporate investment, but green innovation and strong cash reserves help firms adapt.
• Climate Opportunities & Finance: Firms with higher exposure to climate-related opportunities enjoy lower costs of capital, especially in climate-vulnerable countries. Transparent climate disclosure attracts green investors and enhances corporate reputation.
• Sentiment & Policy Uncertainty: Heightened climate policy uncertainty drives companies—particularly private and pollution-intensive firms—to improve ESG performance as a risk mitigation strategy. Negative climate sentiment reduces firm value, but strong ESG practices provide resilience.
• Digital Assets & Climate Risk: Physical climate events (e.g., hurricanes) and transition risks (e.g., policy shifts) significantly increase volatility in cryptocurrency markets, underscoring the climate vulnerability of digital financial assets.

Why It Matters

This body of research highlights that climate change is reshaping financial markets, corporate valuation, and investment logic. It demonstrates that climate factors are now embedded in capital allocation, risk pricing, and strategic decision-making. The findings are especially relevant as countries adopt standards like IFRS S2 for climate-related disclosures. They also reveal the growing interconnectedness of climate stability and financial stability—even in emerging digital asset classes.

Practical Applications

• Companies should proactively identify climate-related opportunities, enhance their ESG disclosure, and maintain strategic liquidity to navigate both regulatory and physical climate shocks.
• Investors can utilise climate opportunity metrics and sentiment analysis to inform their allocation, favouring firms with robust ESG practices and transparent climate communication.
• Policy Makers should design coordinated monetary, fiscal, and environmental policies to incentivise green innovation while supporting corporate adaptation.
• Financial Regulators must consider climate risks in both traditional and digital asset markets, developing resilient frameworks to mitigate volatility linked to environmental disruption.

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