Speaker
Description
1. Research Problem
Climate change is a major systemic risk, disrupting global economic balances (Nordhaus, 2006; Dell et al., 2014) and influencing investment decisions at the microeconomic level (Arian and Naeem, 2025). Moroccan companies, operating in a context of increasing climate vulnerability, are exposed to both physical hazards (droughts, heat waves, water stress) and to the lack of adaptation and sustainable financing tools (Bals et al., 2006). In this context, this study aims to assess the extent to which climate risk affects the investment efficiency of companies listed on the Casablanca Stock Exchange, and whether ESG practices can moderate this impact.
2. Theoretical framework
Based on the Resource-Based View (Wernerfelt, 1984), this research considers companies' resources as central to their performance. Extreme climatic events degrade these resources, compromising their future profitability (Hallegatte, 2008; Rose & Liao, 2005). They also push companies to reallocate their capital towards defensive strategies, to the detriment of productive projects (Hallegatte & Dumas, 2009).
Phan et al. (2022) and Yu et al. (2023) show that climate risk, particularly via carbon risk, reduces the efficiency of investments, particularly in environmentally intensive firms. Arian et al. (2025) confirm this effect in emerging markets, indicating that ESG practices may only partially mitigate these investment inefficiencies. Therefore, two hypotheses guide this study:
- H1: Climate risk has a negative effect on the investment efficiency of companies listed in Morocco.
- H2: ESG practices moderate this negative effect.
3. Methodology
This research takes a quantitative approach to assess the effect of climate risk on the efficiency of investment decisions of Moroccan listed companies, while examining the moderating role of ESG practices. The theoretical model is based on the methodology developed by Biddle et al. (2009), which makes it possible to estimate the optimal investment based on the fundamentals of the company. Climate risk is measured using the Climate Risk Index (CRI) developed by Germanwatch (2021 edition), covering the period 2000–2019. This score aggregates four components: the total number of deaths, the number of deaths per 100,000 inhabitants, absolute economic losses (corrected by purchasing power parity) and economic losses relative to GDP. For reasons of interpretation, the CRI is reversed: higher values reflect increased risk. Investment efficiency (InvEff) is calculated using the following model:
\begin{equation}
Investment_{i,t} = \beta_0 + \beta_1 \cdot Growth_{i,t-1} + \varepsilon_{i,t}
\end{equation}
where investment is defined as the net change in tangible and intangible assets relative to the previous year's total assets. Efficiency is obtained from the opposite of the absolute value of the residual. The main econometric model is specified as follows:
\begin{equation}
InvEff_{i,t} = \beta_0 + \beta_1\, CRI_{i,t} + \beta_2\, ESG_{i,t} + \beta_3 (CRI_{i,t} \times ESG_{i,t}) + \beta_4\, Controls_{i,t} + Year_t + Industry_j + \varepsilon_{i,t}
\end{equation}
The control variables used in this study include financial factors such as company size (LNTA), age (Age), capital intensity (PPE), revenue growth (Growth), return on assets (ROA), market value to book value (MB), liquidity (Cash) and financial leverage (Lev), as well as macroeconomic variables such as the annual growth rate of Moroccan GDP (GDP Growth), log real GDP per capita (LGDP) and quality of the legal environment (LEG-ENV), as measured by Djankov et al. (2007). The inclusion of temporal and industry fixed effects makes it possible to control for unobserved heterogeneities.
4. Results
The results show that climate risk, as measured by the Climate Risk Index (CRI), has a statistically significant and negative effect on the investment efficiency of companies listed on the Casablanca Stock Exchange. This inefficiency is reflected in widening gaps between actual investment levels and those predicted by firm fundamentals, indicating cautious or suboptimal investment behavior under climate-related uncertainty.
Furthermore, the analysis confirms that ESG practices play a moderating role. Companies with stronger ESG commitments exhibit higher investment efficiency in the face of climate risk, due to more robust governance structures, improved access to sustainable finance, and greater adaptive capacity. The positive interaction between ESG variables and the CRI supports the hypothesis of organizational resilience. As for control variables, the findings are consistent with existing literature: firm size, return on assets, and liquidity positively influence investment efficiency, while high leverage and capital intensity are associated with greater inefficiencies, particularly under conditions of heightened climate exposure.
5. Discussion
The findings of this study are part of a growing literature highlighting the disruptive impact of climate risk on investment decisions, particularly in emerging economies. In line with the work of Phan et al. (2022) and Arian et al. (2025), the results show that increased exposure to climate hazards leads to a decrease in investment efficiency, due to heightened uncertainty affecting planning and resource allocation. In the Moroccan context, characterized by high climate vulnerability and limited insurance capacity, companies tend to adopt cautious or even wait-and-see strategies, reducing the quality of investment arbitrage.
This behavior can be interpreted in the light of the Resource-Based View (Wernerfelt, 1984), which postulates that external disturbances affecting key resources impair value creation capabilities. Thus, companies facing high climate risk reallocate their resources toward resilience strategies, often at the expense of more productive opportunities. In addition, the moderating effect of ESG practices observed in the analysis supports the conclusions of Chen et al. (2022) and Kim and Kim (2023), showing that structured environmental governance mechanisms can cushion the negative effects of climate on investment efficiency. ESG engagement thus appears to be a proactive strategy that contributes to improved operational and financial resilience in an uncertain climate environment.
Keywords: Climate risk; Investment efficiency; Investment behavior; Casablanca Stock Exchange; ESG.
