Climate risk and firm-level cost structures: empirical analysis of Saudi listed companies

Purpose This study aims to examine how climate variability affects operating efficiency, cost of capital and total costs among firms in climate-sensitive Saudi sectors. Design/methodology/approach Using a balanced panel of 80 Saudi listed firms in seven sectors during 2010–2024, the study estimates two-step system Generalized Method of Moments (GMM) models for soil moisture, precipitation, specific and relative humidity, wet-bulb temperature and wind speed. Principal component analysis (PCA)-based estimates test robustness to multicollinearity. Findings Soil moisture, specific humidity, wet-bulb temperature and wind speed increase firm costs, whereas precipitation reduces them; relative humidity is insignificant. Leverage increases costs in the baseline model, while larger and faster-growing firms show lower costs. PCA results confirm the climate–cost relationship. Research limitations/implications Results are limited to listed firms in seven Saudi climate-sensitive sectors, the 2010–2024 period and six climate metrics; generalization to private firms, other settings and extreme events should be cautious. The evidence nevertheless frames climate variability as a material financial-risk channel. Practical implications Managers should incorporate climate indicators into budgeting, maintenance, water and cooling investment, liquidity buffers and financing decisions. Regulators and lenders can support climate-risk disclosure, stress testing and resilience incentives aligned with Vision 2030. Originality/value This study offers a novel contribution by shifting the analytical focus from firm profitability to cost structures, providing new insights into how climate variability influences operating, financing and total costs. To the best of the authors’ knowledge, it is among the first to examine this relationship in Saudi Arabia’s arid and economically transforming context using firm-level data and dynamic GMM estimation. By integrating climatic and financial dimensions, the study delivers policy-relevant evidence that supports Saudi Vision 2030 objectives and underscores the importance of climate risk management as a driver of sustainable and cost-efficient growth.