Economic costs of climate shocks for firms in emerging economies

This study examines the effect of physical climate shocks on firm investment behaviour across 43 emerging economies. Drawing on 8775 firm-year observations from the tourism and hospitality (T&H) sector, we find that firms operating in high climate-risk environments exhibit systematically lower investment efficiency. The results indicate that heightened climate exposure prompts a shift toward conservative financial strategies—namely, reduced capital expenditure, greater earnings retention, and increased reliance on short-term financing. These findings underscore the economic costs of climate volatility at the firm level and highlight a structural trade-off between financial resilience and long-term growth in emerging markets.