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Extreme temperatures and the profitability of large European firms

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  • Bellocca, Gian Pietro Enzo
  • Poncela Blanco, Maria Pilar
  • Ruiz Ortega, Esther

Abstract

In this paper, we analyze the impact of temperature exposure on the earnings per share of large European firms over the 21st century. Our findings reveal that earnings are sensitive to extreme temperatures across a large proportion of sectors. Depending on the sector and quarter, exposure to extreme temperatures can have either a positive or negative impact on profitability. Our analysis shows a greater percentage of sectors affected in Europe compared to the US, likely due to Europe's broader temperature variability from the northern Baltic to the southern Mediterranean regions. We observe that most sectors experience effects during the milder seasons of spring and autumn, being positive in most cases. The lack of a clear negative effect of extreme temperatures over firm's profitability points out one of the reasons why it is so difficult to fight against climate change, while being harmful, it can be profitable. Additionally, we highlight a concerning trend regarding a steady increase in European investments in sectors that are solely negatively impacted by extreme temperatures, which grew from around 16% in 2015 to over 23% in 2022.

Suggested Citation

  • Bellocca, Gian Pietro Enzo & Poncela Blanco, Maria Pilar & Ruiz Ortega, Esther, 2024. "Extreme temperatures and the profitability of large European firms," DES - Working Papers. Statistics and Econometrics. WS 44217, Universidad Carlos III de Madrid. Departamento de Estadística.
    • Handle: RePEc:cte:wsrepe:44217
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    Keywords

    Climate change;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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