CLIMATE RISK, GREEN FINANCING, AND FIRM VALUATION: A DYNAMIC PANEL ANALYSIS OF PAKISTAN’S EMERGING ECONOMY

Abstract

This study examined the dynamic relationship between climate risk, green financing, and firm valuation in Pakistan’s emerging economy. In the context of increasing climate-related financial vulnerabilities and the gradual development of sustainable finance markets, the study investigated how environmental risks and green financing mechanisms influence corporate market value. A quantitative research design was employed using panel data from 120 non-financial firms listed on the Pakistan Stock Exchange over the period 2015–2024. The data were analyzed using the System Generalized Method of Moments (GMM) to address endogeneity, unobserved heterogeneity, and dynamic effects. The empirical results revealed that climate risk has a significant negative impact on firm valuation, indicating that higher environmental exposure reduces market performance. In contrast, green financing was found to have a significant positive effect on firm value. Moreover, the interaction between climate risk and green financing was positive and significant, suggesting that green financing mitigates the adverse effects of climate risk on firm valuation. Control variables such as firm size and profitability positively influenced firm value, while leverage exerted a negative effect. The study concludes that green financing plays a crucial moderating role in enhancing firm resilience against climate risk in emerging markets. The findings provide important implications for corporate managers, investors, and policymakers by highlighting the need to strengthen green financial systems and integrate climate risk management into corporate strategy.