Does climate change affects the profitability? Evidence from the Indian energy sector

Purpose Global challenges, particularly the accelerating effects of climate change, have profound implications for individuals, businesses and the environment. The energy sector, encompassing both fossil fuels and renewable sources, plays a pivotal role in the intersection of environmental transformation and economic activity. This study aims to examine the impact of climate change on the performance of energy firms in India. Design/methodology/approach To examine the impact of climate change on the profitability of energy firms, this study comprises 709 annual observations from 71 listed energy firms, spanning the period from 2015 to 2024. This study examines the relationship between climate change and profitability, using fixed effects panel estimation and the two-step system generalised method of moments model as robustness checks for the survey. Findings The study outcome reveals the empirical association between climate change and the profitability of the energy sector in India. The empirical models reveal that temperature change has a significant positive impact on financial performance with (β = 0.134). However, an increase in precipitation leads to a 0.204-unit decrease in earnings. Still, changes in precipitation have an insignificant adverse effect on the economic performance of the energy sector in India. Originality/value While prior studies have extensively explored the economic consequences of climate change across various sectors, limited attention has been given to its impact on energy firm performance in emerging economies. This study addresses this gap by providing empirical evidence from one of the world’s leading energy-consuming economies, offering novel insights into how climate-related uncertainty influences energy market dynamics and firm-level performance.