Climate Change and Adaptation in Global Supply-Chain Networks
83 Pages Posted: 5 May 2023
Date Written: August, 2022
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: Suggested Citation