Climate‐Related Physical Risks, Corporate Investment Behaviours and Supply Chain Risk Levels

Fuelled by global warming, climate change is intensifying, and climate‐related physical risks are progressively becoming a pivotal factor affecting the security and sustainable development of corporate supply chains. Based on panel data from 4610 listed companies on the Chinese A‐share market from 2014 to 2023, this study measures climate‐related physical risks using the textual frequency of climate‐relevant disclosures in corporate annual reports, quantifies corporate supply chain risk levels via the ratio of the standard deviation of firms' production output to market demand, and adopts a two‐way fixed‐effects model to examine the correlation between climate‐related physical risks and corporate supply chain risk levels. The findings reveal that: (1) climate‐related physical risks correspond to higher corporate supply chain risks; a one‐standard‐deviation increase in climate‐related physical risks significantly raises firms' supply chain risk level by approximately 2.70 standard units. (2) Path analysis aligns with a plausible channel logic indicating that climate‐related physical risks relate to elevated supply chain risk levels in association with corporate herd behaviour, off‐site investment and financialisation. (3) Climate transition risks can weaken the positive association between climate‐related physical risks and corporate supply chain risk levels. (4) A further analysis reveals that the effects of climate‐related physical risks are more pronounced in companies located in non‐subtropical monsoon areas, those that are labour‐intensive, with higher supply chain concentration, and where supply chain geographic distances are shorter compared to other types of enterprises. This study demonstrates that amid shocks from abrupt climate disasters and persistent climate change, the risk between enterprise production and demand escalates alongside corporate herd behaviour among industry peers, off‐site establishment of subsidiaries, and expanded corporate financial asset investment.