Abstract and Keywords
This article reviews the dual role financial markets play in transmitting environmental information and providing instruments companies can use to manage environmental risks. It describes the impact of weather volatility on companies and economies, and the new market for weather derivatives. Moreover, it summarizes the current literature which considers how markets—stock markets in particular—react to weather events, corporate environmental disclosures, and news about environmental incidents. It states that financial statements as they exist today do not necessarily provide all the information that users need in order to make economic and investment decisions. Weather conditions affect company sales and activity sectors in different ways and with different intensities. Weather conditions do not just affect sales volumes. They can also influence business profitability. Thus, it is suggested that environmental events, in particular weather turbulences that may result from climate change, could have a significant financial impact on business and the economy.
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