Does Climate Risk Affect Private Capital Markets?

This article provides the first evidence that climate change risk in the United States limits access to private capital markets, which account for the majority of the nation’s corporate financing activity. Using the SEC Form D filings and various sources of climate change data, we show that private companies in states experiencing extreme weather disasters have a harder time raising new capital. We find that, on average, these companies raise less capital, have fewer successful issuances, and pay higher intermediation fees. The greater the severity of the extreme weather event, as measured by property damage and duration, the more negative the issuance outcomes. Overall, the results establish that increased climate change risk can reduce access to private financing. While the impacts of climate change risk have been established for public markets, there is much to be explored given the limited data availability on the private capital markets. As both climate change and the demand for private investment rapidly increase, these findings underscore the urgency for private corporate executives, entrepreneurs, investors, portfolio managers, and policymakers to find new solutions for climate mitigation strategies.