Boston University’s Questrom School of Business, USA

Physical Climate Risk and Firms' Adaptation Strategy

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Abstract

Physical climate risk increasingly impacts firms. While scholars have investigated how firms mitigate their impact on climate change, we know little about how firms adapt to climate change. By developing a novel dataset on public companies’ adaptation strategies globally and merging it with newly released climate science data, this study systematically examines whether, how, and under which conditions firms adapt to physical climate risk. I find that the average adaptation rate across firms and climate risk drivers is 23%. Firms facing higher climate risks are more likely to adapt and with a broader range of adaptation strategies. Also, the impact of climate risk on firms’ adaptation strategies increases over time, particularly for business strategy. I further examine the mechanism and find that higher level of climate risk increases managers’ risk perceptions, which triggers the increased adaptation strategies.

Biography

Xia Li is a Ph.D candidate in the Strategy & Innovation Department at Boston University’s Questrom School of Business. She is also a research fellow with the Global Development Policy Center at Boston University. She is interested in corporate sustainability, climate change, strategy, certification, and innovation. Her dissertation examines climate change and firm strategy. Before her academia career, Xia worked at ERM and Aon in Hong Kong. Her past research and industry experience spans risk management, climate change mitigation, renewable energy, and project finance, and draws on project experience in China, Singapore, Pakistan, and other Asian countries. Xia completed her MPA degree in International Finance and Policy at Columbia University and Bachelor’s degrees (BA, BS) at Peking University.