Climate Risk Exposure and Firms’ Climate Strategies

When exposed to greater physical and transition climate risks, are firms more likely to engage in climate mitigation, climate adaptation, or/and political strategies? This study examines this question and finds that firms exposed to greater physical and transition climate risks are less likely to undertake substantial mitigation efforts. Instead, they pursue other strategies. Specifically, firms exposed to greater physical climate risks are more inclined to pursue adaptation strategies, while firms facing higher transition climate risks are more likely to engage in anti-climate political strategies (such as lobbying against climate policies). The intensity of how firms manage their climate risks is influenced by their time horizon: the more myopic they are, the less they engage in climate mitigation and the more they oppose climate-friendly policies, thereby decreasing transition risks today while worsening their exposure to future physical and transition climate risks. Overall, this study provides insights into the (lack of) preparedness of the corporate sector for heightened climate risks.