Research on credit issues caused by climate impact on supply chains

The heightened intensity and recurrence of extreme weather events resulting from climate change are profoundly reshaping business operations and financial risk governance. As a key link connecting resource allocation and value creation, the supply chain, especially in industries such as agriculture, manufacturing and construction that are highly dependent on nature, is showing unprecedented vulnerability. This paper investigates the transmission mechanism linking climate change, supply chains, and credit risk. Based on data of Chinese listed companies, extreme weather records, and supply chain network indicators, a multiple linear regression model and a VaR transmission model are constructed to quantify the direct and indirect impacts of climate events on the credit impairment of enterprises. As such, financial instruments are introduced to examine the interaction between climate derivatives and credit default swaps (CDS), with smart contracts embedded with the VaR mechanism proposed as a means of mitigating risk. The results indicates that enterprises with intricate supply chains and high network coupling are more susceptible to credit risk spillovers induced by climate events. Networked CDS and smart contracts offer promising tools for identifying and dampening these risk pathways.