Introduction: Climate change presents significant risks for businesses, particularly in emerging markets such as Mexico, where perceptions of sustainability are still evolving. This study aims to examine how carbon emissions influence the cost of equity capital (COE) for publicly listed companies in Mexico.

Methodology: The analysis is based on data from 32 companies over the period 2018-2022 (N = 148 observations). A panel regression model was employed to assess the relationship between carbon intensity and COE, while controlling for key financial variables. Additionally, a Random Forest model was applied to evaluate the relative importance of each variable in determining COE.

Results: Findings indicate a positive relationship between carbon intensity and the cost of equity capital. However, this effect weakens during periods of crisis, such as the COVID-19 pandemic, when financial leverage becomes a more prominent factor.

Conclusions: This study offers valuable insights for corporate managers, investors, and policymakers regarding the integration of sustainability considerations into financial decision-making. It underscores the importance of further exploring how these dynamics unfold in emerging economies.

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Keywords:
Climate change,
carbon emissions,
cost of equity,
market risks,
sustainability,
emerging markets,
Mexico.

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Dimensions

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