Climate Change Risks and Customer Concentration: Evidence From US‐Listed Firms

While prior studies have investigated climate risks in supply chains, customer ESG pressures, and shared climate exposure, this paper is, to the best of our knowledge, the first to provide direct empirical evidence on the relationship between climate change risks and firms' customer concentration. We argue that firms mitigate the financial impacts of climate change risks by reducing their dependence on a few major customers, thereby decreasing customer concentration. Analyzing a sample of US‐listed firms, we find a negative link between climate change risks and customer concentration. A series of endogeneity and robustness tests, including entropy balancing and instrumental variable regressions, suggest that the relationship is more likely to be causal, with climate change risks driving customer concentration. Additional analyses provide collaborating evidence that the impact of climate change risks on customer concentration is more pronounced for (i) firms with greater corporate social responsibility performance, (ii) firms with greater corporate innovation, (iii) firms with higher fixed asset intensity, and (iv) firms not operating in environmentally sensitive industries. Overall, we document the importance of addressing climate change risks, thus informing policy decision making for firms operating in regions with high climate change risks.