Do Firm-Level Climate Risks Drive Firm Political Actions in Climate Change?

• In Event: Firm Politics in an Era of Climate Crisis

Abstract

Firms are important political actors in affecting public policies. Climate change is one of the most important challenges facing humanity today. Better understanding the politics of climate change requires us to focus on firms. Are firms associated with higher climate change physical risks (e.g., from wildfire and floods) and regulatory risks (e.g., regulations banning/heavily taxing fossil fuel extraction) more likely to act politically in affecting climate change policies? To answer this important question, we use a newly published data on firm climate risks (Sauter et al. forthcoming), and we test how these firm level climate risks affect three types of firm political actions: 1) lobby, 2) participation in ad hoc climate policy coalitions, and 3) donations. Our empirical analysis covers all listed companies in the US from 2001 to 2020 and we find that firm physical risk has no effect on firm political actions while regulatory risk is a consistent driver of lobby and coalition participation. The concepts of stranded, climate-forcing, and climate-vulnerable assets and the physical and regulatory risks that they create for firms have long been proposed to better understand climate politics. However, these concepts are extremely difficult to operationalize for large-n analysis and no study has tested their effects on a comprehensive list of firm political actions. This paper therefore makes a significant contribution to the literature on climate change politics by filling this gap in the literature.

Authors

• Xun Cao, Penn State University

• Lingbo ZHAO, Pennsylvania State University