Abstract

This study investigates the relationship between a country's preparedness for natural disasters and its exchange rate valuation and volatility. Using data on 473 natural disaster events from 13 countries from 2000 to 2019, we examine whether countries that exhibit better preparedness for natural disasters also experience better currency valuation and reduced exchange rate volatility. Our results show that all else being equal, countries with higher scores on the Environmental, Social, and Governance Index (ESG score) tend to have higher currency valuation and lower exchange rate volatility. This suggests that the more prepared a country is for climate risk events, the more stable its exchange rate will likely follow a natural disaster. Our study contributes to understanding the factors that influence exchange rate volatility and provides insights for policymakers on how to mitigate the impact of natural disasters on their country's exchange rates.