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Climate Change and Adaptation in Global Supply-Chain Networks

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  • Nora Pankratz
  • Christoph M. Schiller

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.

Suggested Citation

  • Nora Pankratz & Christoph M. Schiller, 2022. "Climate Change and Adaptation in Global Supply-Chain Networks," Finance and Economics Discussion Series 2022-056, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2022-56
    DOI: 10.17016/FEDS.2022.056
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    Cited by:

    1. Chabot, Miia & Bertrand, Jean-Louis, 2023. "Climate risks and financial stability: Evidence from the European financial system," Journal of Financial Stability, Elsevier, vol. 69(C).

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    More about this item

    Keywords

    adaptation; production networks; firm performance; climate change;
    All these keywords.

    JEL classification:

    • F64 - International Economics - - Economic Impacts of Globalization - - - Environment
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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