Impact of climate change risks on equity capital: Evidence-based on Chinese markets

The economic consequences of climate change at the enterprise level have received considerable attention. This study examines the positive effects of climate change risk on equity capital costs, which are realized through firms' operational risk, financial constraints, and the government's service environment. A higher corporate ESG rating enhances the positive effect of climate change risk on equity capital costs. We also find that the Paris Agreement has a benign policy effect on equity capital costs. Finally, expanding upon this groundwork, a thorough heterogeneity analysis has been conducted, encompassing three distinct dimensions—enterprise risk system, industry environmental attributes, and operational ecosystem. •The study addresses the impacts of climate change risk on equity capital costs.•The level of operational risk increases during the shock of climate change.•Degree of financial constraints up during the increasing of climate change risk.•Environmental regulation raises climate change, while policy environment worries.•Providing channels for firms to optimize equity funding in light of climate change.