Introduction to Corporate Finance Under Climate Crisis

This chapter introduces the evolving intersection of corporate finance and climate change, highlighting the transformative challenges and opportunities faced by businesses in a warming world. It explores how climate change reshapes traditional financial decision-making, requiring an integrated understanding of environmental risks, regulatory shifts, and emerging market opportunities. The chapter emphasizes the dual nature of climate risks: physical risks stemming from extreme weather and environmental degradation, and transition risks arising from the global shift to a low-carbon economy. Key historical milestones, including the Kyoto Protocol and Paris Agreement, are examined to contextualize the global response to climate change. Additionally, the chapter underscores the escalating costs of climate inaction, disproportionately borne by developing nations, and discusses the critical role of sustainable finance tools such as green bonds in facilitating the transition. By framing climate change as a “wicked problem” marked by complex stakeholder dynamics, ethical dilemmas, and global inequities, the chapter sets the stage for the transformative role of corporate finance in mitigating and adapting to climate risks. It argues that navigating these challenges requires innovative valuation methods, reimagined governance structures, and significant capital investments, ultimately redefining corporate finance as a driver of resilience and sustainability in the face of the climate crisis.