Assessing Physical Risk Impact of Climate Change: A Focus on Chile

Climate change poses significant challenges to economies worldwide, including Chile, where adverse effects are already evident and expected to worsen. To assess the financial impact of climate change, understanding agents' exposure to natural events is crucial yet challenging due to data scarcity. This paper focuses on evaluating exposure to physical risks in Chile, utilizing a novel approach that combines micro-level administrative sales data, firm-level debt information, and physical risk scenarios at the municipality level. The dataset covers all invoice transactions at the firm level in Chile, enabling precise computation of physical risk exposures. This granular approach provides unprecedented insights into climate change's potential impacts on economic sectors, agents, and regions. There is a high concentration of sales and banking debt in municipalities with high physical risks. About half of sales and debt are in municipalities that might face extreme heat episodes in the future, this number decreases to 15% when dealing with urban fire risk. The study contributes to closing data gaps in climate-related research, offering a comprehensive evaluation of physical risk exposures in all 345 municipalities in Chile. Results highlight the diverse economic landscape of Chile and sheds light on the country’s unique challenges, including water safety, extreme heat, urban fires, hydroelectric generation, and heat mortality, emphasizing the need for targeted interventions to enhance economic resilience.