How companies prepare for climate risks

The study analyses more than 128,000 annual reports (Form 10‑K) from more than 13,500 US companies between 2003 and 2025. It is based on strictly regulated corporate disclosures, in which companies report risks and strategic measures, audited by accountants, legal experts, and regulatory authorities. Using a Large Language Model‑based classification system (LLM), around 255 million paragraphs are automatically classified and transformed into a new firm‑level adaptation indicator.

The paper distinguishes between adaptation actions that a firm undertakes to protect itself and adaptation solutions for customers and other market participants. The adaptation actions are grouped into the five categories physical protection, adaptive operations, risk transfer, financial reserves, and risk assessment.

• Physical protection describes measures that physically strengthen or redesign assets and infrastructure to withstand extreme weather.
• Adaptive operations comprise adjustments to processes, supply chains, and business models.
• Risk transfer stands for insurance, reinsurance, and other instruments that shift financial consequences.
• Financial reserves refer to internal buffers and dedicated recovery funds to absorb climate‑related losses.
• Risk assessment means systematic identification and evaluation of physical climate risks.

Over the full sample period, 28.4% of the firms mention climate adaptation at least once; in a typical year, 19.6% of firms do so. Risk transfer actions and risk assessment dominate, while physical protection and financial reserves are mentioned less frequently. Adaptation intensity increases after major extreme weather events such as Katrina, Sandy, or Harvey, and most of the variation in adaptation occurs at the firm level, rather than being driven only by industry or time trends.

In the first application, the study links adaptation data to stock market reactions around severe hurricane landfalls in the United States. Firms with establishments in hurricane‑affected regions experience significantly negative market reactions. However, pre‑event physical protection actions disclosed in advance significantly mitigate these losses. A one‑standard‑deviation increase in physical protection is associated with roughly 0.5 percentage points higher returns over a 20‑trading‑day window and, on average, offsets about one quarter of the negative stock price reaction.

The second application shows that financial constraints noticeably slow down adaptation. A one‑standard‑deviation increase in the Whited‑Wu index (unit of measurement for financial difficulties) is associated with a 4–14% reduction in adaptation actions relative to the sample mean, especially for physical protection, adaptive operations, and financial reserves. After hurricane events, exposed firms do increase adaptation, but financially constrained firms react much less precisely when preparedness matters most.

For investors, CFOs, and risk managers, the study makes clear that exposure and preparedness are two distinct dimensions of physical climate risk. What matters is not only where a firm’s assets are located, but also which adaptation channels it has in place and whether these are credibly financed. At the same time, the paper illustrates how modern AI methods and open data platforms, such as the freely available models on Hugging Face, can help integrate climate risk and adaptation metrics into financial decision‑making, governance, and executive education.

Professionals who want to dive deeper into how climate risks, financial markets, and new technologies interact will find suitable executive education programs in sustainable finance at the University of Zurich. 

• The course Climate Change Finance explains how climate change is modelled and measured, how physical climate risks translate into financial risks, and how the financial sector responds.
• In the course Fintech, AI and Sustainability, participants learn key concepts from FinTech, blockchain, and AI and explore case studies on how these technologies are applied in sustainable finance.

• Schimanski, Tobias, Firm-level Climate Change Adaptation (April 05, 2026). Available at SSRN: https://ssrn.com/abstract=6710044
• Data and models: https://huggingface.co/climate-adaptation