Extreme weather events and firms’ energy practices. The role of country governance

This paper provides evidence on the adaptation response of firms to weather extreme events, in terms of sustainable energy practices (SEPs). Also, this article takes advantage of country heterogeneity, to investigate how climate economic damage interacts with the institutional context to affect the energy transition of firms. Based on survey data for a large cross-section of businesses, and adopting an ordinary least-squares multivariate regression analysis, this study finds that: (i) climate disasters seem to play the role of focusing events, increasing the propensity to adopt sustainable energy practices; (ii) greater innovation propensity, strategic environmental objectives, and the hiring of managers responsible for environmental issues seem mechanisms through which extreme events impinge on firms’ energy policies; (iii) firms’ adaptation is affected both directly and indirectly by the quality of country governance, which enhances sustainable energy practices. In particular, the findings highlight the role played by control of corruption and political stability in firms’ energy transition, suggesting the importance of designing and improving institutional mechanisms to “never let a good crisis go to waste”.