As the climate crisis continues to escalate, the corporate world is increasingly grappling with a complex web of risks. These are not limited to direct physical impacts but extend deeply into transitional and perceptual dimensions, disrupting business models, financial valuations, and strategic planning. In this context, a groundbreaking study recently published in the journal Risk Sciences presents a comprehensive firm-level climate risk assessment framework, addressing critical gaps that have long hindered effective corporate climate risk management.
The research illuminates how companies face physical risks, such as damage to production infrastructure and supply chain breakdowns triggered by escalating extreme weather events. These physical disturbances have had a profound economic impact globally, with 2023 alone witnessing climate disasters inflicting direct financial losses exceeding $300 billion. Yet, physical risks only paint part of the picture; the study delves into transition risks that emerge from evolving regulatory landscapes, specifically policies designed to achieve carbon neutrality. The European Union’s Carbon Border Adjustment Mechanism (CBAM), for example, has considerably increased operating costs for Chinese exporters by an estimated 12 to 15 billion Chinese Yuan annually, while rapid technological advancements accelerate the depreciation of legacy industrial equipment.
Beyond tangible physical and transition threats lies a subtler but equally powerful force: perception risks. These derive from media narratives, financial transparency, and social network data, all shaping public and investor sentiment. The study quantifies this influence, revealing a correlation wherein a 10% rise in negative climate-related news coverage corresponds to a 2.3% increase in stock price volatility within affected sectors. This insight underscores the profound impact that information flows and stakeholder perceptions have on corporate valuation and risk exposure.
Despite acknowledgment of these multifaceted risks, current corporate risk assessments and management techniques remain notably fragmented. The researchers demonstrate that prevailing methodologies cover fewer than 42% of the interaction mechanisms between physical, transition, and perception risks. This fragmentation restricts companies’ ability to grasp interconnected risk dynamics, leading to misaligned strategies and unexpected financial repercussions. In response, the study introduces a systematic integrative framework that cohesively evaluates these risk categories, enhancing firms’ comprehensive understanding and strategic foresight.
Implementing such an integrated risk management approach yields significant financial resilience. The study’s findings indicate that enterprises improving their climate risk management capabilities can curtail climate-induced economic volatility by between 23% and 37%. Moreover, establishing risk-sharing mechanisms within supply chains mitigates indirect losses by 12% to 18%. Enhanced transparency in environmental and climate-related disclosures further stabilizes financial markets, demonstrated by a marked 2.3% reduction in stock price fluctuations.
At the macroeconomic scale, national and policy-level adjustments amplify corporate risk mitigation outcomes. For instance, increasing transparency in low-carbon policy frameworks can substantially reduce compliance burdens for export-heavy industries, sparing firms costs upward of 12 to 15 billion Chinese Yuan annually. Complementary investments targeting technological innovation and disaster prevention bolster supply chain robustness, with every 1% rise in such investments cutting the probability of disruptive events by 0.8%.
From a valuation perspective, firms utilizing this holistic framework enjoy a 15.6% premium in market valuation, suggesting that investors reward integrated climate risk awareness and management. Conversely, companies neglecting Scope 3 emissions—those indirectly linked through supply chain and product lifecycle impacts—not only underestimate transition costs by as much as 45% but also risk substantial financial and reputational setbacks.
The study’s senior author, Professor Jun Bi of Nanjing University, emphasizes future research avenues that promise to deepen understanding and predictive accuracy of corporate climate risk. These include developing composite assessment systems that incorporate network analyses of supply chain vulnerabilities, where risk transmission efficiency surges by 58% when node dependencies exceed certain thresholds. The integration of machine learning and complex network methodologies could elevate predictive precision to an impressive 89.2%, enabling dynamic and coupled assessments of intertwined risks.
This novel framework also significantly advances the comparability and strategic decision-making efficacy for firms. Horizontal comparability of risk analyses improves by 67%, facilitating benchmarking and shared learning across industries. Equally, decision effectiveness increases by 41%, equipping business leaders with more actionable intelligence to navigate an increasingly uncertain climate future.
Beyond its immediate corporate implications, this research proffers critical insights for global climate governance. The framework’s scientific rigor and practical orientation offer policymakers and environmental regulators a powerful tool to align regulatory frameworks with enterprise realities, fostering more resilient economies and sustainable development pathways. Transparency, integrative methodologies, and collaborative risk sharing emerge as keystones for future-proof climate adaptation in the private sector.
As climate risks continue to unfold at accelerating pace and scale, bridging the gap between fragmented assessments and integrated management becomes vital. This study’s contributions mark a substantial leap forward in the theory and application of climate risk evaluation, highlighting the indispensable role of interdisciplinary approaches and advanced analytics. Corporate entities adopting these insights will likely lead in both sustainability performance and financial robustness.
The research team behind this study comprises leading scholars from Nanjing University, including Distinguished Changjiang Scholar Professor Jun Bi, Assistant Professor Jianxun Yang, and Associate Professors Zongwei Ma and Miaomiao Liu. Their collective expertise merges environmental science, risk analytics, and data-driven methodologies, reinforcing the study’s multidisciplinary strength and policy relevance.
KeAi Publishing, the journal’s publisher, facilitates global dissemination of such pivotal research through open-access model, promoting cross-disciplinary dialogue and accelerating innovation in climate risk sciences. Supported by the National Natural Science Foundation of China, this work exemplifies the growing momentum to develop scientifically rigorous yet pragmatically applicable solutions to one of the 21st century’s most daunting challenges.
In sum, this pioneering firm-level climate risk assessment framework not only reveals the intricate realities of how risks interlace in corporate contexts but also charts a forward-looking agenda for research and practice. Its advanced analytical tools and holistic perspective are poised to become a cornerstone in the evolving architecture of climate-resilient economies worldwide.
Subject of Research: Not applicable
Article Title: Firm-level climate risk assessment: Recent progress and future research agenda.
Web References: https://www.sciencedirect.com/science/article/pii/S2950629825000025
References:
Bi, J., Yang, J., Ma, Z., Fang, W., Liu, M. (2025). Firm-level climate risk assessment: Recent progress and future research agenda. Risk Sciences. DOI: 10.1016/j.risk.2025.100012
Image Credits: Zhao, Z. et al.
Keywords: Economics, Earth sciences
