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| Climate Policy Uncertainty Response and Financial Asset Allocation of Real Economy Enterprises |
| ZHOU Zejiang, WANG Shun, DONG Feng
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School of Business, Anhui University;
School of Economics and Management, Tsinghua University |
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Abstract Climate change is deeply affecting the global real economy. As a responsible major country, China attaches great importance to climate issues, not only elevating the achievement of the “dual carbon” goals and actively responding to climate change to the national strategic level, but also directly implementing a series of climate policies and achieving positive results. However, it is important to note that firms often cannot accurately predict whether, when, or to what extent government agencies will adjust climate policies. Therefore, climate policy carries a high degree of uncertainty. From an economic perspective, the macro-level climate policy uncertainty index has been rising sharply in recent years, suggesting that existing research on this issue remains limited.
This paper examines the impact of climate policy uncertainty on the real economy by focusing on corporate financial asset allocation. The results show that a one standard deviation increase in climate policy uncertainty leads to a 6.66% standard deviation increase in the level of financial asset allocation. Mechanism analysis reveals that climate policy uncertainty increases the risks of both traditional physical assets and green physical assets, which drives firms to adjust their asset structures. Heterogeneity analysis further indicates that the effects of climate policy uncertainty are compounded by physical climate risks, especially in firms with weaker risk governance and limited external guidance. The economic consequences test demonstrates that the shift toward financial asset allocation caused by climate policy uncertainty is not conducive to firms' green transformation and high-quality development.
The marginal contribution of this paper is mainly reflected in the following three aspects: First, this study finds that, similar to physical climate risks, climate policy uncertainty can also reduce the return on real investments, leading firms to increase their financial asset allocation. The finding adds useful evidence to the growing literature on how climate risks affect the real economy. Second, as China moves into a key stage of green and low-carbon transition, the influence of climate policy on the economy has become more important. This paper adds to the literature on policy uncertainty and corporate investment by focusing on the specific uncertainty related to climate policy, rather than using general economic policy uncertainty indicators. Finally, this paper clarifies the inherent mechanism of climate policy uncertainty leading to corporate financial asset allocation, that is, climate policies with high uncertainty are not only not conducive to the green transformation of corporate physical assets, but also increase the risk of traditional physical assets.
This paper provides the following policy implications. First, for climate policymakers, it is important to consider not only the strictness or flexibility of individual climate policies but also the consistency and coordination among newly introduced and existing policies. Improving policy coherence can help reduce uncertainty and ease the investment challenges faced by firms in the real economy. Second, it is essential to recognize the diverse and systemic nature of climate risks, as well as the interconnections among different types of specific climate risks. Policymakers should make full use of the guiding role of long-term institutional investors and government-led environmental policies to build a multi-level governance framework that involves government, markets, and enterprises. Finally, for firms, it is necessary to adopt a long-term perspective, continuously strengthen their resilience to climate risks, and build a solid foundation for a low-carbon transition. This can help reduce short-term speculative behavior, such as excessive reliance on financial asset allocation, and support more sustainable business strategies.
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Received: 03 June 2024
Published: 02 May 2025
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