Physical Climate Risk and Foreign Direct Investment: Is China Different?

Abstract This study deploys newly available data to examine the exposure of multinational companies’ overseas investments to physical climate risk. Globally, we find that foreign investment in the agriculture and mining sectors is most associated with physical risk. We also examine China, as it is fast becoming one of the largest centers of both inward and outward foreign investment across the globe. We find that foreign facilities located in China are associated with higher hurricanes and typhoon risk than their domestic counterparts in China. For Chinese firms operating abroad, we find that China’s overseas facilities are associated with higher water stress, floods, and hurricanes & typhoon risks across host countries, compared with non-Chinese companies. Within host countries, however, climate risks of Chinese facilities are comparable to that of non-Chinese facilities.