Climate Change and Adaptation in Global Supply-Chain Networks
80 Pages Posted: 29 Oct 2019 Last revised: 10 Aug 2021
Date Written: June 25, 2021
This paper examines how physical climate risks affect firms' financial performance and operational risk management in global supply-chains. We document that weather shocks at supplier locations reduce the operating performance of suppliers and their customers. Further, customers respond to perceived changes in suppliers' climate-risk exposure: When realized shocks exceed ex-ante expectations, customers are 6-11% more likely to terminate existing supplier-relationships. Consistent with models of experience-based learning, this effect increases with signal strength and repetition, is insensitive to long-term climate projections, and increases with industry competitiveness and decreases with supply-chain integration. Customers subsequently choose replacement suppliers with lower expected climate-risk exposure.
Keywords: Climate Change, Adaptation, Firm Performance, Production Networks
JEL Classification: G15, Q54, G30, F64
Suggested Citation: Suggested Citation