Climate Change and Adaptation in Global Supply-Chain Networks

83 Pages Posted: 5 May 2023

See all articles by Nora M. C. Pankratz

Nora M. C. Pankratz

Board of Governors of the Federal Reserve System

Christoph Schiller

Arizona State University (ASU) - W.P. Carey School of Business

Date Written: August, 2022

Abstract

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: adaptation, production networks, firm performance, climate change

JEL Classification: Q54, F64, G30, G15

Suggested Citation

Pankratz, Nora M. C. and Schiller, Christoph, Climate Change and Adaptation in Global Supply-Chain Networks (August, 2022). FEDS Working Paper No. 2022-56, Available at SSRN: https://ssrn.com/abstract=4438744 or http://dx.doi.org/10.17016/FEDS.2022.056

Nora M. C. Pankratz (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Christoph Schiller

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States

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