Climate change risk and financial distress in Vietnam's industrial sector

Abstract

Climate change risk is one of the significant challenges for economies and the business community. Climate change risk affects enterprises through two transmission channels: physical risk and transition risk. Transition risk has notably impacted businesses, primarily as low-carbon emission policies are being implemented. This is particularly relevant in the industrial sector, which is among the largest greenhouse gas emitters. Therefore, understanding the impact of climate change risk on Vietnam's industrial sector is crucial for policymakers, capital providers, and managers. This study provides an in-depth view of the impact of climate change risk, measured by carbon (CO2) emissions and emission intensity (CO2), on financial distress and bankruptcy risk for firms in Vietnam’s industrial sector. The sample includes 782 industrial firms with 5,889 firm-year observations from 2012 to 2022. Using a quantitative research approach, secondary data, and estimating the model through Logit regression with marginal effects, the results indicate that firms with higher carbon (CO2) emissions face more significant financial difficulties. Additionally, the COVID-19 pandemic has exacerbated financial distress.