Physical climate change exposure and firms’ adaptation strategy
The Challenge:
Companies worldwide are increasingly facing the physical impacts of climate change, which pose significant risks to their operations and long-term viability. Despite growing urgency to act, there is limited understanding of how firms adapt to these long-term, systemic, and uncertain changes. A key challenge is identifying the factors that drive corporate adaptation strategies and understanding how firms respond to varying levels of climate change exposure.
The Research:
The researcher investigates how publicly traded companies around the globe adapt to physical exposures to climate change. By compiling a dataset that merges information on corporate adaptation strategies with climate science data, the researcher examines the sensitivity of firms to the nature and level of forecasted climate change exposures. The findings reveal that firms are more likely to adapt when facing higher forecasted climate exposures. The study also highlights that firms with greater environmental, social, and corporate governance (ESG) capabilities and those with longer time horizons are more proactive in their adaptation efforts in response to higher climate exposures.
The Challenge:
Companies worldwide are increasingly facing the physical impacts of climate change, which pose significant risks to their operations and long-term viability. Despite growing urgency to act, there is limited understanding of how firms adapt to these long-term, systemic, and uncertain changes. A key challenge is identifying the factors that drive corporate adaptation strategies and understanding how firms respond to varying levels of climate change exposure.
The Research:
The researcher investigates how publicly traded companies around the globe adapt to physical exposures to climate change. By compiling a dataset that merges information on corporate adaptation strategies with climate science data, the researcher examines the sensitivity of firms to the nature and level of forecasted climate change exposures. The findings reveal that firms are more likely to adapt when facing higher forecasted climate exposures. The study also highlights that firms with greater environmental, social, and corporate governance (ESG) capabilities and those with longer time horizons are more proactive in their adaptation efforts in response to higher climate exposures.
The Impact:
The findings of this study have significant implications for both corporate management and policymakers. For companies, the research emphasises the need to integrate climate change considerations into their strategic planning. For policymakers, the study suggests that targeted interventions may be necessary to support corporate adaptation efforts, particularly for firms with lower ESG capabilities or shorter time horizons. By understanding the factors that drive corporate adaptation, stakeholders can develop more effective strategies to reduce the impacts of climate change and promote sustainable business practices.