FEMISE is proud to launch its latest series of policy briefs, stemming from insightful conference papers presented at the FEMISE annual conference. These briefs are rooted in scientific research and offer actionable political recommendations to address critical challenges in the Euro-Mediterranean region.

The objective if this new series of Policy Briefs is to provide policy makers, international organisers, researchers and stakeholders in the EU-Med region with research-based policy recommendations that: advocate a better EU-Med integration;  promote mobilization of investments towards green transition and sustainable economies; empower young people through innovation and entrepreneurship advocacy; and facilitate a better and more equal integration of youth and women, aiming to create pathways for decent employment.

These Policy Briefs aspire to drive impactful dialogue and action across the EU-Med region.

Context

The Mediterranean region is among the most climate-vulnerable areas in the world, experiencing temperature increases significantly faster than the global average, alongside growing water scarcity, ecosystem degradation, and exposure to extreme weather events. These environmental pressures increasingly translate into economic and financial risks, particularly for firms operating in climate-sensitive and polluting sectors.

While climate change has become a central concern for policymakers, investors, and businesses, its concrete financial implications for firms across the Euro-Mediterranean region remain insufficiently understood. Existing policy frameworks often adopt broad, one-size-fits-all approaches, overlooking sectoral differences, national governance capacities, and the role of environmental policy effectiveness in shaping corporate resilience.

In this context, understanding how climate change exposure affects firms’ financial performance—and how environmental governance can mitigate these effects—is critical for designing policies that support economic resilience, sustainable investment, and long-term competitiveness in the Mediterranean region.

Summary

This policy brief examines the impact of climate change exposure on corporate financial performance across the Mediterranean region, drawing on firm-level data from 566 companies operating in 24 Mediterranean countries over the period 2001–2022. Using advanced measures of climate exposure and multiple indicators of financial performance, the analysis shows that climate change exposure has a statistically significant and negative effect on firms’ profitability and market valuation.

The findings reveal that these negative effects have intensified in the period following the Paris Agreement, suggesting that while awareness of climate risks has increased, existing protective mechanisms remain insufficient. The brief also highlights strong sectoral disparities: firms in more polluting and climate-sensitive industries—such as agriculture, tourism, and coastal activities—face disproportionately higher financial risks, indicating that uniform policy approaches are inadequate.

Crucially, the analysis demonstrates that environmental policy effectiveness plays a moderating role. Firms operating in countries with stronger environmental governance frameworks experience lower financial vulnerability to climate risks than those in weaker regulatory environments. This underscores the importance of national policy capacity and institutional quality in shaping climate resilience.

Based on these findings, the policy brief calls for a comprehensive, multi-stakeholder approach combining mandatory climate risk disclosure, sector-specific adaptation strategies, climate-aligned financial instruments, and strengthened regional cooperation. By aligning environmental governance with financial and industrial policy, Mediterranean countries can better protect firms, support sustainable investment, and build long-term economic resilience in the face of accelerating climate change.

Read the full Policy Brief no.13 here.

This Policy Brief is part of the FEMISE Policy Brief Series and is based on the FEMISE Conference Paper no.14. entitled: «Climate Change Exposure And Financial Performance: Evidence From The Mediterranean Region» with the same authors.

The opinions and contents of this document are the sole responsibility of the authors and can under no circumstances be regarded as reflecting the position of FEMISE, IEMED, ERF or the AECID