Firm relocation as adaptive response to climate change and weather extremes

Growing scientific evidence suggests that human-induced climate change will bring about large-scale environmental changes such as sea-level rise and coastal flooding, extreme weather events and agricultural disruptions. The speed and extent of these changes and the expected impacts on social and corresponding economic and industrial systems are now moving to the forefront of debates. In this paper, we argue that climate change will lead to significant disruptions to firms which might ultimately create the necessity of a geographical shift of firm and industrial activities away from regions highly affected by climate change. Such a shift might become necessary due to (1) direct disruptions through climate change impacts on firm operations, for instance through droughts, floods, or sea level rise, and due to (2) disruptions in a firm's supplier, buyer or resource base that lead to flow-on effects and adverse consequences for a firm. We propose a framework for integrating firm relocation decisions into firm adaptive responses to climate change. The framework consists of three assessment steps: the level of risk from climate change impacts at a firm's location, the feasibility of relocation, and associated costs and benefits. We apply the framework to two case examples. The first case of electricity distribution firms in Victoria/Australia illustrates how the relocation (undergrounding) of cables could decrease the vulnerability of distribution networks to bushfires and the risk of electricity-caused fires, but would require significant investments. The second case of firms in the Australian pastoral industry points to geographic diversification of pastoral land holdings as possible adaptation option, but also to constraints in form of availability of suitable properties, ties to local communities, and adverse impacts on biodiversity. Implications for adaptation research and practice are outlined.

Research highlights▶ Climate change might create the necessity for firm relocation away from highly affected regions. ▶ The paper develops a framework for assessing firm relocation due to climate change impacts. ▶ Two case examples illustrate difficulties associated with firm relocation.