Do Mandatory Contributions to a Climate Risk Fund Affect Firm Performance? Evidence from a Country Highly Vulnerable to Climate Risk

This study examines the impact of mandatory contributions to a climate risk fund (CRF) on firms’ subsequent financial performance using 2,117 firm-year observations from 2010–2019. Using a difference-in-differences approach, we find that firms subject to the CRF requirement experience significant increases in both market-based and accounting-based performance following the regulatory mandate. These results suggest that stakeholders positively value firms’ CRF contributions, leading to improved financial outcomes. Further analyses indicate that this improvement is driven by two primary channels: a signaling effect, whereby compliance and additional contributions enhance perceived credibility; and a capital availability channel, through which treated firms attract greater interest from global ESG-sensitive investors. Cross-sectional analyses show that this mandate has a stronger positive effect among firms with higher market- and accounting-based performance volatility. Overall, our findings inform the cost-benefit debate on mandated climate risk financing and have important implications for regulators, policymakers, investors, and firms globally. Data Availability: All data are publicly available in the sources stated in the paper. JEL Classifications: M41; M48; Q41; Q56; G28; G38.