Adam Smith Business School

Nora Pankratz, Federal Reserve

"Climate Change and Adaptation in Global Supply-chain Networks"
Friday, 24 March. 2 pm
Wards Library

Abstract

This paper examines how physical climate risks affect firms' financial performance and operational risk management in global supply chains. We document that weather shocks at supplier locations reduce the operating performance of suppliers and their customers. Further, customers respond to perceived changes in suppliers' climate-risk exposure: When realized shocks exceed ex-ante expectations, customers are 6-11% more likely to terminate existing supplier relationships. Consistent with models of experience-based learning, this effect increases with signal strength and repetition, is insensitive to long-term climate projections, and increases with industry competitiveness and decreases with supply-chain integration. Customers subsequently choose replacement suppliers with lower expected climate-risk exposure. 

Bio

Nora Pankratz is an economist in the Division of Financial Stability at the Board of Governors of the Federal Reserve System. Her research explores the potential effects of climate change on workers, firms, and supply chains and investigates how these effects play out on financial markets.

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First published: 20 March 2023