Climate Change and Adaptation in Global Supply-Chain Networks

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

Pankratz, Nora M. C. and Schiller, Christoph, Climate Change and Adaptation in Global Supply-Chain Networks (June 25, 2021). Proceedings of Paris December 2019 Finance Meeting EUROFIDAI - ESSEC, European Corporate Governance Institute – Finance Working Paper No. 775/2021, Available at SSRN: https://ssrn.com/abstract=3475416 or http://dx.doi.org/10.2139/ssrn.3475416