Climate risk and firm location choice: Based on the empirical evidence of supply chains

In the face of uncertainties posed by climate change, realigning corporate investment portfolios is essential to achieving sustainable development goals. This study uses data from China's A-share listed firms over the period 2007–2022 to empirically analyze the impact of climate risk on the geographical distribution of firms' investment activities. The study finds that climate risk significantly increases firms' likelihood of locating subsidiaries closer to their customers. Firms with higher customer concentration are particularly likely to respond to climate risk by establishing subsidiaries in proximity to customers, driven by the "strong customer dependence effect". Specifically, mechanistic analysis suggests that climate risk elevates supply chain risk and diminishes customer stability, thereby incentivizing firms to locate subsidiaries near customers. Further analysis shows that firms with higher transport and storage costs, no strategic alliances with customers, and a stronger market position are more inclined to locate subsidiaries close to their customers. Extended analysis shows that suppliers with subsidiaries located close to their customers can gain more timely insights into customer demand, effectively mitigating supply-demand mismatches. From the supplier-customer relationship perspective, this study highlights the role of climate risk in firms' geographic investment decisions and provides strategic insights for policymakers to develop climate-resilient supply chains.