Managing physical impacts of climate change: How awareness and vulnerability induce adaptation

While business tends to be seen a substantial factor in causing climate change, climate-induced physical changes can also pose major challenges to firms in return. Firms can reduce their vulnerability to these changes by implementing anticipatory adjustments (adaptation) or by trying to absorb and recover from weather and climate events (resilience). Based on an empirical analysis of the oil and gas industry, this paper examines how the way firms make sense of climate stimuli in terms of awareness and vulnerability to these stimuli informs their strategic measures to adapt and become more resilient to climate-induced physical change. In the empirical analysis, the paper derives four main types of adaptation behaviour – pre-emptive, reactive, continuous and deferred adaptation – that correspond with different degrees of awareness and vulnerability. It also explores the relevant firm and context-specific features that affect awareness, vulnerability assessment, and subsequent adaptation measures. The findings suggest that the type of physical change, the sources of information used, the ecological embeddedness, and the potential financial implications seem to have the most distinctive influence on the measures firms take to cope with physical impacts. The paper concludes with implications for research, management practice, and policymakers.