Download Managing Physical Impacts of Climate Change: An Attentional

Managing Physical Impacts of Climate Change:
An Attentional Perspective on Corporate Adaptation
Jonatan Pinkse1 and Federica Gasbarro2
Forthcoming in Business & Society
1 Manchester Institute of Innovation Research, Alliance Manchester Business School,
University of Manchester, UK
2 Istituto di Management, Scuola Superiore Sant'Anna, Pisa, Italy
Corresponding Author
Jonatan Pinkse, Manchester Institute of Innovation Research, Alliance Manchester Business
School, University of Manchester, Booth Street West, Manchester M15 6PB, UK
Email: [email protected]
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Abstract
Based on a study of the oil and gas industry, this article examines how physical impacts of
climate change become events that firms notice and interpret in a way that leads to an active
response to adapt to these impacts. Theoretically, the study draws on the attention-based view
to highlight the potential biases that might occur as a consequence of firms’ preconceptions
as well as organisational structure and context. In the empirical analysis, the article derives a
model that explains the influence of the attentional process on how awareness and perceived
vulnerability lead firms to either adopt routine or non-routine measures to adapt to climate
change. The article also explores the relevant underlying factors of awareness and perceived
vulnerability. The findings suggest that how firms channel attention to climate events has a
distinctive influence on the measures firms take to cope with physical impacts. The article
concludes with implications for research, management practice, and policymakers.
Keywords
adaptation, attention-based view (ABV), climate change, oil and gas industry
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While until now the scientific and political discourse on the need to adapt to climate change’s
physical impacts has been taking a backseat, with the recent Paris Agreement on climate
change of December 2015, adaptation has finally achieved equal footing with the need for
mitigation. In the development of the global agreement on climate change, countries no
longer just developed plans to reduce greenhouse gas (GHG) emissions, but also set out how
they would adapt to physical impacts (Mogelgaard, McGray, & Amerasinghe, 2015;
UNFCCC, 2015). Besides affecting countries, physical impacts can also pose major
challenges to firms. Such impacts lead to changes in the business environment (Weinhofer &
Busch, 2013), leaving firms vulnerable when they are not able to cope with these changes
(Busch, 2011; O'Brien, Eriksen, Nygaard, & Schjolden, 2007). Particularly vulnerable are
sectors that rely on specific temperatures and seasonal conditions, such as agriculture,
forestry, and tourism; have industrial facilities located in climate-sensitive areas, such as
coastal areas and floodplains (IPCC, 2007); or depend on large-scale infrastructures (IPCC,
2012), such as energy, automotive and transportation sectors (Winn, Kirchgeorg, Griffiths,
Linnenluecke, & Günther, 2011). Vulnerability can be reduced if firms adapt to impacts by
implementing anticipatory adjustments or by seeking to absorb and recover from extreme
weather and climate events (Linnenluecke, Griffiths, & Winn, 2012).
A perspective considering firms as vulnerable to climate change, instead of
responsible for climate change, is still fairly novel (Berkhout, 2012; Linnenluecke &
Griffiths, 2010; Tashman, Winn, & Rivera, 2015). As existing research has shown, firms
have mainly focused on their role with respect to mitigation in terms of reducing GHG
emissions, responding to climate policy, and creating business opportunities related to both
(Pinkse & Kolk, 2009). Corporate adaptation to climate change is less well understood, in
part because firms have not addressed adaptation to the same extent as policymakers and
scientists have (Linnenluecke & Griffiths, 2010; Pinkse & Kolk, 2012; Sussman & Freed,
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2008; Tashman et al., 2015). Nonetheless, recent anecdotal evidence suggests that business’
efforts to respond to so-called “adaptation emergencies” that are the result of extreme
weather events are increasing rapidly (Caring for Climate, 2015; Hall, Berkhout, & Douglas,
2015). Recently, also a new stream of literature has emerged that sheds light on corporate
adaptation strategies through conceptual frameworks based in organisation theory
(Linnenluecke & Griffiths, 2010; Linnenluecke, Griffiths, & Winn, 2012; Winn et al., 2011)
and empirical work within specific industries (Beermann, 2011; Busch, 2011; Galbreath,
2011; Haigh & Griffiths, 2012; Hertin, Berkhout, Gann, & Barlow, 2003; Hoffmann,
Sprengel, Ziegler, Kolb, & Abegg, 2009; Linnenluecke, Stathakis, & Griffiths, 2011; Scott &
McBoyle, 2007; Tashman & Rivera, 2015; Weinhofer & Busch, 2013). These studies
identified factors that influence corporate adaptation strategies, e.g., awareness of climaterelated physical threats, degree of uncertainty, and risk management capabilities (Busch,
2011; Hertin et al., 2003; Hoffmann et al., 2009; Tashman & Rivera, 2015), and presented
models of adaptation strategies (Berkhout, Hertin, & Gann, 2006; Linnenluecke et al., 2012).
As this literature suggests, corporate adaptation is a difficult process for firms to
tackle and for scholars to understand (Berkhout, 2012). Not much is known about why firms
notice and act upon certain stimuli and ignore others. Part of the problem is that climate
stimuli are ubiquitous: “[s]ometimes the stimuli for adaptations are expressed as climate or
weather conditions (e.g., annual average precipitation or experienced hourly or daily
precipitation), sometimes as the ecological effects or human impacts of the climatic
conditions (e.g., drought, crop failure, or income loss), and increasingly as the risks and
perceptions of risks associated with climatic stimuli or the opportunities created by changing
conditions” (Smit, Burton, Klein, & Wandel, 2000, p. 229). Moreover, given the business-asusual nature of many stimuli (e.g., weather conditions), firms will already have organisational
processes to deal with (some of) them. What is not clear, therefore, is which stimuli firms
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notice given the multiplicity of potential impacts (Berkhout, 2012), and whether firms
perceive physical climate impacts as a unique problem in need of a tailored solution, or as a
business-as-usual problem for which existing practices suffice (Winn et al., 2011).
This article examines the adaptation process and how firms select between alternative
stimuli and decide how much effort to spend on developing a response for those stimuli they
choose to act on. Insight into this process is important, because climate stimuli are notorious
for their impact to be underestimated (Hulme, 2009). Consequently, climate change has been
referred to as a predictable surprise: ‘an event or set of events that catch an organisation
offguard, despite leaders’ prior awareness of all of the information necessary to anticipate the
events and their consequences’ (Bazerman, 2006, p. 180). What motivates this article is the
question whether a firm’s chance to fall victim to such a surprise can be inferred from how a
firm deals with external stimuli for which the potential business impact is still highly
uncertain. From a societal point of view, understanding how firms deal with climate-induced
physical impacts is relevant as well. If firms fail to do adapt, they might no longer be able to
provide products and services for society. Neglect of relevant stimuli on their part might thus
imperil the functioning of the societies firms serve (Surminski, 2013; Winn & Pogutz, 2013).
As a theoretical foundation, we apply the attention-based view of the firm (ABV) that
sheds light on how firms select between stimuli and decide how to respond to the selected
stimuli (Kahneman, 1973; Ocasio, 1997, 2011). Attention has been defined as the process of
noticing, interpreting, and allocating effort to “stimuli requiring action and the available
repertoire which define that action” (Hoffman & Ocasio, 2001, p. 415; Kahneman, 1973;
Ocasio, 1997). ABV emphasizes the influence of the organisational structure and context in
channelling attention to certain stimuli and not to others (Nigam & Ocasio, 2010; Ocasio,
2011; Rerup, 2009). Not only does the attentional process refer to the mechanism of noticing
and interpreting stimuli to select those that require action, but also of allocating effort to the
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selected stimuli to be able to define available responses for subsequent action (Kahneman,
1973; Ocasio, 1997, 2011).
To empirically examine the influence of a firm’s attentional process on adaptation to
climate-related physical changes, we focus on the global oil and gas industry. This industry is
particularly sensitive to physical changes due to its reliance on natural resources such as
water supply; the fact that operations are located in geographic areas exposed to extremes; a
high dependence on large-scale infrastructures; and its long-lived and relatively immobile
capital assets. Using information from the Carbon Disclosure Project, we first explore which
factors determine whether oil and gas firms notice climate stimuli and build up a state of
awareness of physical impacts. We then investigate how firms interpret their vulnerability to
these stimuli, and subsequently develop a response repertoire of adaptation measures. Based
on the analysis we develop a model on the role of attention in corporate adaptation to climate
change. The model explains how the process of noticing and interpreting of climate stimuli
changes under the influence of structural and contextual factors, which in turn leads to
different levels of effort firms put in developing adaptation measures, that is, either relying
on existing practices (routine response) or tailored to the stimuli (non-routine response).
Literature Review
Awareness and Vulnerability Regarding Climate Stimuli
Firms are seen as important actors in mobilizing society to adapt to physical impacts of
climate change (Berkhout, 2012). What is not clear, though, is why firms would take on such
a role. Up to now, firms have either been known as fairly negligent of adaptation to climate
change (Linnenluecke & Griffiths, 2010; Pinkse & Kolk, 2012; Sussman & Freed, 2008),
have been taken by surprise by extreme weather events (Haigh & Griffiths, 2012), or have
not considered adaptation measures as a specific response to climate change (Galbreath,
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2014). Besides, adaptation to climate-induced physical changes could be delicate for firms.
Adaptation calls into question firms’ relation with the ecosystems they are embedded in and
depend on for (natural) resources (Whiteman, Walker, & Perego, 2013). Adaptation is also
highly complex, not only due to the novelty of the issue, but also due to the great number of
factors related to weather and climate events and their underlying dimensions (e.g., time,
magnitude, location, predictability, etc.) that need consideration (Winn et al., 2011).
Moreover, the science of climate change has not been accepted unequivocally; the science is
still heavily debated between those that seem convinced by scientific findings about climate
change and those that remain sceptical (Hoffman, 2011). Even if firms seem overwhelmed by
direct climate stimuli from weather-related disasters or indirect stimuli from stakeholder
pressure, press coverage, and external suppliers’ difficulties due to climate change (Berkhout
et al., 2006; Tashman et al., 2015; Winn et al., 2011), there is no guarantee that they will take
note of and act upon these stimuli (Bansal, 2003; Hoffman & Ocasio, 2001).
The corporate adaptation literature has highlighted two factors – awareness and
vulnerability – to explain why certain firms respond to climate stimuli, while others fail to do
so (Tashman et al., 2015). The first factor is the awareness of climate stimuli (Arnell &
Delaney, 2006; Berkhout et al., 2006; Bleda & Shackley, 2008; Hertin et al., 2003; Hoffmann
et al., 2009). Arnell and Delaney maintain that “before an organisation embarks on adaptation
it must be first aware of the potential threat of climate change, and second concerned about
potential impacts on its business” (2006, p. 229). In a study on ski resorts, Hoffmann et al.
(2009) found that awareness has a positive impact on corporate adaptation measures. Ski
resorts pursue more diverse adaptation measures the more they are aware of physical climate
impacts. These findings suggest that awareness affects the scope of adaptation measures.
However, firms can only build up awareness when they have the organisational processes in
place to notice a broad set of climate stimuli.
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The second factor that influences adaptation measures is vulnerability (Hertin et al.,
2003; Hoffmann et al., 2009). Vulnerability has been defined as the degree to which firms
fail to cope with climate-related disruptions in the natural environment (O'Brien et al., 2007).
In a study of Australian firms, Linnenluecke, Griffiths, and Mumby (2015) found for
example that their perceived vulnerability was an important mediator between managers’ use
of scientific information about climate change and their perceived need to take action to
adapt to physical impacts. While there are different understandings of vulnerability, we
follow what has been referred to as contextual vulnerability. Contextual vulnerability views
the relationship between nature and society as mutually determined, instead of a onedirectional impact of the environment on society. As O’Brien and colleagues explain,
“[contextual vulnerability] is considered to be influenced not only by changing biophysical
conditions, but by dynamic social, economic, political, institutional and technological
structures and processes; i.e. contextual conditions” (2007, p. 76). How firms assess their
vulnerability not only depends on objective biophysical features of climate stimuli, such as
the frequency of extreme weather events, but also on more subjective socio-economic
features (Linnenluecke & Griffiths, 2010). That is, vulnerability depends on how firms
perceive the relevant timeframe, urgency, and controllability of physical impacts (APA,
2009).
An Attentional Perspective on the Corporate Adaptation Process
While the literature has referred to awareness and vulnerability as key factors for adaptation,
how firms achieve awareness and assess vulnerability to climate-induced physical changes is
less well understood. In the following, we show how insights from the ABV shed light on
this process. As explained in the introduction, ABV refers to the attentional process of
noticing and interpreting to select which stimuli to take action on and to decide with how
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much effort to do so (Kahneman, 1973; Ocasio, 1997). What is key to Ocasio’s view on
attention is that he not only refers to attention in terms of whether stimuli are being noticed,
but also how stimuli are being interpreted, because “interpretation of stimuli greatly
influences how much attention is devoted to those stimuli” (Cho & Hambrick, 2006, p. 454).
So stimuli could be noticed, but still not have any attention devoted to them, if they are not
interpreted as having a potential impact. ABV argues that three basic principles determine
how firms decide how much attention to devote to stimuli (Ocasio, 1997).
First, firms have a selective focus of attention. Due to resource and time constraints,
firms will not be able to notice and interpret a wide set of stimuli on a sustained basis and for
that reason fail to see many stimuli as requiring action (Ocasio, 2011; Rerup, 2009). What
compounds selective attention is a process of enactment (Hoffman & Ocasio, 2001); that is
firms construct their own meaning of objective characteristics based on certain
preconceptions, and in so doing rearrange or disregard many of these characteristics (Weick,
1988). Due to selective attention, rare events run the risk of being disregarded when firms do
not have dedicated structures to notice and interpret such events (Lampel, Shamsie, &
Shapira, 2009). In case of unexpected rare events, firms will remain ignorant, if they lack a
repertoire of categories available to interpret a weak signal (Levinthal & Rerup, 2006). By
extension, many firms might not consider physical climate impacts as relevant stimuli
because the impacts are novel, rare and complex (Winn et al., 2011). A selective bias is partly
alleviated by routinization. Stimuli that keep being relevant become part of an automated
response (Ocasio, 1997). Due to the nature of climate stimuli, though, developing routines
might be a challenge (Winn et al., 2011). In a study on water and construction firms,
Berkhout et al. (2006) found that since the climate stimuli firms were facing were highly
ambiguous and experienced indirectly, firms had difficulties assessing which standard
operating routines would be adequate.
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Second, attention is situated (Ocasio, 1997). As Ocasio explains, “what decisionmakers focus on, and what they do, depends on the particular context they are located in”
(1997, p. 190). Situated attention implies that whether an event is noticed not only depends
on the characteristics of individual decision-makers, but also on the specific situation or
context decision-makers find themselves in. The same type of event might be noticed by
some, but ignored by others, depending on the characteristics of the context. In the case of
climate change, situated attention is captured by the proximity of physical climate impacts
relative to a firm’s operations. Whether firms will experience and notice potentially
disruptive climate stimuli largely depends on the specific location of their operations
(Driscoll & Starik, 2004; Galbreath, 2011). For example, a weather event might be perceived
as extreme, when a firm operates in stable climatic conditions, and as normal when a firm
operates in highly unstable climatic conditions. So, while climate-related physical impacts
might affect many economic sectors, potential adaptation measures are context-specific, in
line with the location of a firm’s operations (Berkhout, 2012; Winn et al., 2011).
Third, attention depends on the formal and informal organisational structures firms
use to allocate effort to stimuli (Barnett, 2008; Ocasio, 1997). That is, the existing
organisational structure has a bearing on the issues that firms consider as requiring action.
When firms lack the structures to allocate focus towards physical climate impacts, they will
either fail to notice or incorrectly interpret which climate stimuli might be relevant for them
to act upon (Galbreath, 2011). Fankhauser, Smith, and Tol (1999) argue, for instance, that
adaptation measures depend on the availability and access to reliable and detailed
information about climate change and the ability to process such information. Busch’s (2011)
findings on adaptation practices in Swiss and Austrian electric utilities corroborate this
argument. Firms with structures to source and process climate-relevant information are found
to be better able to absorb such information and use it to develop specific adaptation
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measures. As these studies show, dedicated organisational structures enable firms to notice
relevant climate-related information and process this information to interpret its value for the
firm. A firm’s awareness and vulnerability thus not only depend on organisational structures
to collect information, but also on those to interpret the information collected.
The three principles of the ABV – selective, situated and structured attention –
suggest that the rarity and proximity of physical climate impacts relative to a firm’s
operations and the selective bias created by existing organisational structures are important
for a firm’s awareness and vulnerability. It is not clear, though, how these factors work
together as part of a firm’s attentional process in building up awareness and assessing
vulnerability. In the empirical part, we will address first the influence of selective, situated
and structural attention on the process of generating awareness and assessing vulnerability. In
other words, which factors determine how firms notice and interpret climate stimuli to create
awareness and assess their vulnerability? Also, scholars have argued that a firm’s awareness
and vulnerability will together translate into specific adaptation measures (Linnenluecke et
al., 2012). What remains unanswered is whether firms consider physical climate impacts as a
unique phenomenon or as business-as-usual. As second issue, we will therefore address how
the attentional process affects the repertoire of adaptation measures that firms consider. That
is, how much effort do firms put in developing adaptation measures in terms of developing
practices tailored to climate-related physical impacts or relying on existing practices?
Data and Methods
This article adopts a qualitative approach to gain understanding of how firms notice and
interpret climate stimuli, thereby building up awareness and assessing vulnerability, and
allocate effort to developing adaptation measures. As our starting point, we took theoretical
constructs, such as the role of awareness, vulnerability, uncertainty, and geographic location,
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which had been identified in the adaptation literature, with the aim to further elaborate them
by analysing qualitative information on corporate adaptation measures through the ABV lens.
We seek to develop an empirically-grounded model of an attentional view on the corporate
adaptation process from the initial noticing and interpreting of climate stimuli all the way
through to the decision how much effort to spend on the implementation of practices to cope
with physical climate impacts.
For this article, we used archival information from the Carbon Disclosure Project
(CDP), which gathers information on the climate profile of firms. To date, CDP represents
the most important source for business’ climate-related responses, in term of risks, climaterelated strategies and carbon accounting from thousands of the world’s largest firms. CDP’s
strength is in providing rich qualitative information for a large sample of firms, because the
questionnaire consists of open-ended questions. As an archival source, we decided to use
CDP instead of sustainability reports and corporate websites because the information
provided on adaptation to climate change via these other communication channels was far
more limited. The climate change sections of these reports and websites still seem to be
largely dominated by mitigation activities.
While CDP has been criticized for its lack of accuracy in the quantitative measures of
GHG emissions (Kolk, Levy, & Pinkse, 2008), this issue was less relevant for the purpose of
our article. We were mainly interested in the qualitative aspects such as the specific themes
that firms discussed with regard to their response to the physical impacts of climate change.
CDP forms a unique source of information, but to assess the trustworthiness of the
information thus obtained, we did an analysis of Financial Times articles that reported on oil
firms and the impact of climate change. Besides, we compared our information with the
findings of several industry reports that have been published on the topic of corporate
adaptation to climate change (Agrawala et al., 2011; Caring for Climate, 2015; Nitkin, Foster,
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& Medalye, 2009; Sussman & Freed, 2008). While we could not find an exact match, we
were able to corroborate the key findings of our article in terms of how firms perceive and
respond to climate events.
For our analysis we chose the CDP 2010 questionnaire, even though this
questionnaire was not the most recent version when the analysis was conducted. We made
this choice for the sake of the exploratory nature of our research. In fact, in more recent CDP
questionnaires, questions about corporate adaptation had been merged and reduced. In
contrast, CDP 2010 has open questions, more adequate for our research objective. CDP 2010
includes information of 1499 firms. For our analysis we targeted the oil and gas industry
group (energy industry group according to CDP classification). While this industry was
analysed before on the topic of climate mitigation (Levy & Kolk, 2002; Sæverud &
Skjærseth, 2007), adaptation has not yet been investigated. We selected this industry because,
as the press coverage suggested, over the past decade this industry is regularly victim of
extreme weather events such as hurricanes and disappearing permafrost that have been
attributed to climate change. The industry has experienced such events due to the geographic
location of facilities in severe-weather-prone areas, the dependence on drought-sensitive
inputs such as water, the ownership of long-lived capital assets and the reliance on a largescale infrastructure (IPCC, 2012). Besides, this industry has already suffered from negative
impacts of extreme events in terms of physical damages and financial losses, for example in
the hurricane seasons of 2005 and 2008 in the Gulf of Mexico. We considered this industry
relevant to our article, because we expected a critical mass of firms to have taken measures to
cope with climate events, allowing us to trace back, how, and why these firms had decided to
do so. As a consequence, the information might suffer from a positive selection bias. One
would expect that firms that have already taken measures would be more likely to respond to
CDP. Analysis of CDP answers suggested otherwise, though. A sizable number of firms in
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the sample openly stated that they neither consider the impact of climate change nor see it as
important to their business.
In the CDP 2010 questionnaire, 91 firms in the oil and gas industry group responded.
Compared to other industries, the response rate is relatively high (68%), recognizing that
current and/or anticipated physical impacts of climate change represent significant risks. For
the purpose of this article, of the entire questionnaire, we considered a selected number of
questions with information about adaptation to climate change. The questions selected
contain 444 pages of text. Three firms did not provide answers for the selected questions,
thus reducing our final sample to 88 firms. Our sample included firms operating at each stage
of the oil and gas supply chain (upstream, midstream, downstream, providers of equipment
and services); so not only with a portfolio of oil and natural gas products, but also including
coal, chemicals and renewables. While not all firms in the industry would be as exposed to
climate events, because they do not own facilities that face direct physical impacts (e.g.,
providers of equipment and services), we decided to keep them in because the oil industry
tends to set up collaborative projects involving many different firms. As a result, firms that
do not face direct impacts might be subject to climate change impacts indirectly.
The CDP answers were coded and analysed using NVivo. In coding the information,
we first conducted an exploratory coding procedure to find the main issues emerging from
firms’ statements (Strauss & Corbin, 1998). To get a better understanding of the initial codes
we followed a method whereby we moved from first-order themes, to second-order themes,
and final themes, respectively (Gioia, Corley, & Hamilton, 2013). Our analysis was not fully
bottom-up, though, as from the start onwards we were interested in how firms’ awareness and
vulnerability would inform their adaptation measures. We tried to trace how these basic
concepts were reflected in the firms’ CDP answers on adaptation. We first identified each
firm’s state of awareness and vulnerability respectively, to then uncover the reasons for why
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firms would look at climate-related physical changes the way they did. Similarly, we
analysed the types of responses firms were considering or had already implemented to cope
with the physical changes.
=================
Figure 1 about here
=================
Figure 1 shows the coding structure used for our analysis. For awareness many firstorder themes revolved around risk and uncertainty about climate change more generally. The
extent to which firms seemed to notice climate stimuli depended on their risk perception, i.e.
whether climate change would have a potentially immediate or delayed impact and whether
climate change refers to extreme or more gradual changes. Besides, uncertainty about
whether climate-related physical changes would become a reality played a role. Here, we
specifically looked at the type of information that firms used to make their assessment, as
uncertainty tends to derive from a lack of information. Another factor related to awareness
that emerged concerned the experience firms had with dealing with their local ecosystem.
Since oil and gas firms have always operated under extreme conditions, many firms
emphasized the importance of their pre-existing knowledge and structures to operate in such
environments, regardless of the influence of climate change. We then tried to analyse what
the influence of such knowledge was on their awareness of climate change. In the case of
vulnerability, many of the first-order themes were more concerned with the actual impact of
climate change on their business. In line with previous studies (Berkhout et al., 2006; Winn et
al., 2011), we coded for whether impacts were of a direct or an indirect nature. In coding for
vulnerability, firms’ past experience surfaced again, but now in the role of allowing them to
assess the severity of impacts in relation to their own business. Since perceived vulnerability
depends on whether firms can cope with climate impacts, we coded for the degree of control
firms felt that they had over such impacts. Finally, to code the adaptation measures we partly
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used categories of existing studies (Berkhout et al., 2006; Hoffmann et al., 2009; Weinhofer
& Busch, 2013), but some also emerged from the analysis. To link this theme to others in the
follow-up analysis we classified measures into routine and non-routine responses.
We used the second-order themes as our main building blocks to theorize how firms
moved from the initial noticing of climate events via interpretation to specific measures to
cope with these events. To develop our model, we applied insights from the ABV to
investigate the influence of a firm’s attentional process on adaptation measures. We first
analysed what role the processes of noticing and interpreting played for the creation of
awareness and perceived vulnerability, respectively. Subsequently, we analysed each secondorder theme from the perspective of the three ABV principles to assess the influence of the
attentional process on corporate adaptation. We investigated how structural and contextual
factors create a selection bias and determine the effort firms spend on developing a repertoire
of responses for climate stimuli.
In this final stage, we further elaborated our three overarching themes – awareness,
perceived vulnerability and adaptation measures – by assessing how the attentional process
guided firms through this sequence. We not only tried to understand the corporate adaptation
process by examining the relationships between categories within each final theme, but also
the relationships between the final themes. For this purpose, we developed a matrix with on
one side the dimensions of awareness and perceived vulnerability and on the other side
adaptation measures. Such cross-tabulation helped identifying adaptation measures in relation
to firms’ awareness and interpretation of perceived vulnerability in relation to direct and
indirect climate stimuli. The emerging adaptation measures were interpreted, where possible,
by making reference to the existing studies on corporate adaptation strategies and insights
from the ABV. This final stage resulted in the model that will be presented in the discussion
section.
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Findings
In this section, we first identify factors that determine how firms notice and interpret climate
stimuli, creating awareness and a vulnerability profile with regard to climate-related physical
changes. Next, we investigate how the resultant state of awareness and perceived
vulnerability lead to specific adaptation measures.
Awareness of Climate Change Stimuli
To analyse factors that lead firms to notice climate stimuli and build up awareness, we first
sought to uncover how the oil and gas firms in the sample identify and process information
with regard to the main characteristics of climate-induced physical changes. What emerged
from the findings is that a firm’s awareness depends on three interdependent factors: (1) risk
perception, (2) perceived uncertainty, and (3) knowledge about local ecosystems (see Table
1).
=================
Table 1 about here
=================
Our coding of the data suggests that 70 firms in the sample show awareness of
climate stimuli, although the degree of awareness differed considerably. A firm’s awareness
seems to depend on how decision-makers assess the risks as well as the uncertainty of
physical climate impacts. Regarding risk perception, the firms in the sample diverge
considerably in their assessment of the potential risks of climate events. On the one hand,
firms with a low risk perception tend not to notice climate events, not because they are
ignorant of such events, but because they see potential risks related to climate change as
irrelevant to their business. Sometimes, such a low risk perception is based on the type and
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location of operations, for example, in a relatively stable natural environment. Centennial
Coal notes that “[t]he nature of our operations and assets are such that things like extreme
weather events, changes in weather patterns or rises in sea level do not pose a significant risk
to these physical assets” (Centennial Coal CDP survey 2010). A low risk perception can also
derive from a conviction that physical impacts are not likely to occur within a time window
relevant to the business activities. Occidental Petroleum Corporation states “it is not aware of
credible projections that significant changes in weather or climate that could result in
immitigable impacts are probable within the anticipated operating life of its facilities”
(Occidental Petroleum Corporation CDP survey 2010).
On the other hand, firms in the sample with a high risk perception not only notice
physical changes, but also the geographical location of such changes in relation to their
assets. One of the main drivers of a high risk perception is that firms have already
experienced the impacts of climate-related physical change directly, in particular in the form
of extreme weather events. Crisis management and emergency plans were not sufficient to
prevent great financial losses. A high risk perception is expressed both in terms of firms
noticing a more frequent occurrence of extreme weather events as well as the resulting
business impacts such as asset damages, delays and shutdowns of operations, personnel
safety, supply chain disruptions, increased competition for supplies and services related to
post-event recovery, and reduced demand for products. While firms with a high risk
perception tend to focus on extreme climate events, they also consider more steady changes
in the ecosystem. Gradual changes in water availability, for example, could have negative
consequences by changing the economic preconditions of operations, as exemplified by Penn
West:
Penn West’s assets are, to a large extent, established facilities designed and
constructed at a time when public and industry awareness of the risks of climate
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change was not as high as it is today. In many instances the cost of upgrading these
facilities to accommodate the need to use less fresh water will be substantial and may
exceed that of economic viability, which could lead to decreased production at certain
assets. (Penn West CDP survey 2010)
Interestingly, in terms of the relevant time window for physical impacts to occur, firms with a
high risk perception still tend to focus on physical changes that are prevalent in the present
time. Nevertheless, the fact that firms have been affected already does induce them to start
considering changes in the mid to long-term. Total states, for example, that “the timescales
over which these identified physical risks are expected to materialize are: Anytime” (Total
CDP survey 2010).
Perceived uncertainty of climate change is another factor affecting firms’ awareness.
When firms perceive high uncertainty, they tend to have a relatively low awareness of
climate stimuli. High uncertainty is sometimes based on doubts about the relation between
rising GHG emissions and climatic change. Occidental states for example that even though
“facilities face these physical risks, the involvement, if any, of GHG emissions or climate
change is indeterminate” (Occidental Petroleum Corporation CDP survey 2010). In addition,
although these firms know about the key informational resources to gain insight, such as the
IPCC, they seem to take these sources at face value. Since the information is not related
directly to their own operations, uncertainty remains as to how their own business would be
affected. Low awareness is further aggravated by firms’ reliance on historical data to gain
understanding of climate impacts. Also, when firms do look into the future they hold a rather
short-term perspective. Perceived uncertainty is not only a factor for firms that fail to notice
climate stimuli, though, but also for some that do. Firms noticing climate stimuli do not face
uncertainty about the occurrence of climate events, but instead about the severity and the
19
exact timeline – i.e. how extreme physical changes will be and when they occur. To assess
the likelihood of occurrence, these firms primarily rely on direct experience of physical
changes and damages; although they also consult information from (inter)national institutes,
such as the IPCC, and industry associations. For about one third of the firms this information
is sufficient, as these firms state that they do not see any uncertainty and indicate the timeline
of extreme weather and climate events, albeit with considerable variance in these timelines.
Finally, a factor that seems to moderate risk perception and perceived uncertainty is
the knowledge firms have of the local ecosystems in which they operate. One third of the
firms in the sample explain that they are located in an area subject to extreme natural
conditions and have built up extensive knowledge about the local ecosystems. These firms
have already implemented measures to deal with increased frequency and intensity of
extreme weather events and are used to dealing with weather variations and harsh conditions.
These firms have organisational structures to handle local ecosystems, including risk
monitoring, assessment and mitigation as well as emergency and business continuity plans,
and have integrated specific functions or working groups in standard risk management
systems to deal with harsh conditions. Next to on-going anticipatory adjustments to cope with
extremes, knowledge about local ecosystems also allows firms to identify new challenges
from more steady and gradual changes, such as water availability. Hence, knowledge of local
ecosystems helps firms to recognize relevant climate stimuli and thus contributes to creating
awareness.
Paradoxically, a well-developed knowledge base about local ecosystems could also
hinder awareness creation. Such knowledge does not necessarily translate into noticing
climate stimuli, because firms consider physical changes as business-as-usual. Hence,
perceived risk and uncertainty about climate change impacts are reduced considerably,
because firms are prepared to cope with extremes anyway. For example, Cenovus and
20
Encana claim to be able to cope with temperatures ranging between -40°C and +30°C. Such
knowledgeable firms argue that they have built resilient organisational structures because
they understand local ecosystem dynamics, enabling them to anticipate risks, prevent crises
and be prepared for physical changes. Thus, even when firms have the organisational
structures to pick up relevant climate stimuli, these structures might induce them not to notice
novel stimuli, as they consider their operations to be resilient to any climate events that might
occur in the future.
Perceived Vulnerability to Climate Change Stimuli
To analyse factors that affect how firms assess their vulnerability, we identified how the oil
and gas firms in the sample interpret climate stimuli in terms of the extent to which these
firms can cope with climate events they expect to occur. The analysis shows that perceived
vulnerability depends on three interdependent factors: (1) the perceived impact of climate
stimuli, (2) past experiences with climate events, and (3) the controllability firms perceive to
have over climate impacts (see Table 2).
=================
Table 2 about here
=================
Based on an analysis of the types of impact firms identify, 61 firms in the sample
perceive their organisations to be fairly vulnerable to climate stimuli. The perceived
vulnerability first depends on the interpretation of the perceived impact of climate events;
that is, what is considered as an impact of climate change and what is not. Firms in the
sample with a fairly low perceived vulnerability focused in particular on the direct physical
impacts on their own business operations, such as damages to production facilities or
infrastructure. The impacts that firms with a fairly high perceived vulnerability in the sample
mention not only include direct physical impacts, but also indirect impacts on their markets
21
and their broader business environment. Firms that feel vulnerable tend to stress the financial
implications, as climate change could endanger their position in the market due to interrupted
or reduced production and lead to lower revenues. While climate events could endanger
revenues directly, these firms also consider other, more indirect impacts such as reputational
damage from difficulties to supply oil or oil spills, or a deterioration of their relation with
local communities. BG Group states, for example, that “[t]here is potential for conflict with
local communities near our operations for resources, such as water, when availability of the
resources is affected by climate change or where our activities may be perceived to adversely
influence local industries” (BG Group CDP survey 2010). Origin Energy, on the other hand,
warns for the potential financial implications from “increased government attention and
regulations such as greater control on spatial planning, government charges for water in light
of droughts, increased energy market regulation etc.” (Origin Energy CDP survey 2010).
Past experience with extreme climate events comes to the fore as a second factor
influencing perceived vulnerability. Past experiences affect how firms interpret climate
events because they enable firms to create a repertoire of available categories to make sense
of climate stimuli (Ocasio, 1997). The analysis suggests that lessons learned from previous
experiences help firms to interpret specific extreme weather events because they have a better
understanding of the most likely operational and/or financial impacts. Halliburton states, for
example, that it “has adapted its facilities over many years of operations in order to sustain its
presence in the Gulf of Mexico. Many facility design lessons have been learned through
several hurricane events experienced in the last 10 years” (Halliburton CDP survey 2010).
The fact that firms have already experienced damages enables them to quantify and report
financial implications with great accuracy in terms of costs and losses and can therefore make
a detailed assessment of their vulnerability. It is not always clear, if a detailed vulnerability
assessment informed by past experiences will lead to higher or lower perceived vulnerability.
22
While the scope of impacts considered as well as past experiences influence the
vulnerability assessment, the analysis suggests that perceived vulnerability depends to a great
extent on whether firms see potential climate impacts as controllable or not. That is, firms
located in areas subject to harsh natural conditions might still perceive their vulnerability as
fairly low, because their assumed ability to identify risks and implement corresponding
actions to mitigate risks and reduce impacts on the business provides them with a high sense
of controllability. Due to the “business-as-usual” character, firms with a high sense of control
do not see climate events as rare, and thus do not feel the need to make an effort to further
analyse potential consequences of such events. While biophysical changes could still affect
production facilities, the fact that these firms have implemented appropriate measures leads
them to believe that they are able to withstand expected and unexpected changes. Roc Oil
Company argues for instance that “[a]ny weather-related disruptions that may occur at our
operations are addressed through our existing management systems, including our emergency
response procedures” (Roc Oil Company CDP survey 2010).
However, a high sense of control is not shared equally among all firms in the sample.
One reason why firms have doubts about their ability to cope with climate events is that
damages might not be fully covered by insurance and thus require specific agreements with
contractors. Controllability also decreases when it concerns more indirect impacts such as a
disruption in the supply of products and problems in the supply chain from midstream and
downstream operators. These indirect impacts could lead to financial consequences such as
increased costs of production, for example, from increasing fuel prices required to operate in
abnormally cold weather or to rising commodity prices. The indirect impact seems quite
prevalent in the oil industry because the industry has a strong history of collaboration. As a
result, perceived vulnerability is not only the result of damage to firms’ own operations, but
also to operations of collaborators. For example, during hurricane Katrina in 2005, Shell’s
23
Mars platform suffered damages “above water, when massive clamps holding part of the rig’s
structure failed under sustained winds of 270 km per hour, while, under water, the anchor of
another firm’s mobile drilling unit that had gone adrift cracked the pipeline” (Shell CDP
survey 2010). Coping with such impacts is very complex, as coping requires a coordinated
response and the controllability of any individual firm is limited.
The Impact of Awareness and Vulnerability on Adaptation Measures
To examine how awareness and perceived vulnerability lead to specific adaptation measures,
we first tried to distinguish the main adaptation measures used by the oil and gas firms in the
sample. We could identify the following measures: (1) wait-and-see, (2) risk assessment, (3)
technical solutions, (4) reduction of exposure through geographical decisions, (5) shift and
share risks, (6) disaster relief and business continuity, (7) portfolio diversification and (8)
cooperation. In part, this list of measures corroborates previous research that makes the
distinction between doing nothing, assessing risk, reducing risk, sharing risk and diversifying
(Berkhout, 2012; Berkhout et al., 2006; Hoffmann et al., 2009; Weinhofer & Busch, 2013).
We also found that oil and gas firms engage in measures to do disaster relief and ensure
business continuity and reduce geographic exposure (Linnenluecke et al., 2011). In addition,
we identified new forms of cooperation with competitors and other stakeholders.
=================
Table 3 about here
=================
Table 3 shows how the different adaptation measures relate to the degree of
awareness and vulnerability, respectively. Firms that had not created a general awareness and
did not perceive themselves as vulnerable to climate events are the ones adopting a wait-andsee strategy (18 firms in the sample). These firms do not pursue any real adaptation measures
although they do not always exclude the possibility to change their behaviour in the future.
24
Nevertheless, a basic response to climate events that seems unrelated to the degree of
awareness or vulnerability is to conduct a risk assessment. A risk assessment is not always a
stepping stone to more concrete measures, as SBM Offshore exemplifies:
Besides the insurance activities, SBM does not plan to manage or adapt to the risks
identified as physical risks other than keeping a close eye on the developments of the
risk (and the identification of possible new risks) through the Risk Management
Process. (SBM Offshore CDP survey 2010)
Overall risk assessment forms a hygiene factor for any firm that has some notion of climate
change (25 firms in the sample refer to risk assessments). It generally entails monitoring
scientific developments from major research institutes specialized in climate science or
keeping track of short-term weather forecasts and longer-term weather scenarios. For
example, Premier Oil states that “[m]eteorological and oceanographic studies are carried out
for all new projects. These include hindcasting and analysis of data on wind, currents and
wave height over 1,000 years. These studies will now include forecasting to include
anticipated variations brought about by climate change” (Premier Oil CDP survey 2010).
Risk assessment thus seems a standard routine in the oil industry which is unaffected by the
degree of awareness or perceived vulnerability of a firm.
The many technical measures that firms in the sample mention range from developing
standards and respecting mandatory requirements, to designing improvements for
maintenance, materials, facilities, assets, and process engineering to endure physical impacts
(47 firms in the sample refer to some form of technical solutions). Some firms identify
operational alternatives to overcome physical impacts such as constructing an all-weather
road to access upstream facilities. Sometimes the objective of an intervention is to reduce the
dependency on affected natural resources through consumption reduction, re-use and
25
recycling, in particular to deal with limited water availability. As long as firms are not in a
complete state of negligence, they all engage in at least some of these measures and develop
specific technical routines.
Routines that have become quite common as well are measures to share or shift risks
(mentioned by 20 firms) and to do disaster relief and ensure business continuity of plants and
facilities after weather-related disasters (mentioned by 34 firms). A considerable number of
firms rely on insurance instruments to share and shift risks. More elaborate instruments for
risk sharing/shifting such as consideration of physical risks in contract negotiations,
economic evaluation of new projects, and a more widespread tendency to pass increased
costs to costumers were only seen among the firms with high perceived vulnerability. Highly
vulnerable firms were also the ones claiming to have put in place emergency, contingency
and restoration plans to secure assets, personnel and operations and set up crisis management
teams to deal with disasters and ensure business continuity. Disaster relief not only comprises
reactive measures such as crisis management, though, but also involves more proactive
initiatives to make anticipatory adjustments to ensure business continuity. For example, while
Shell decided to become “part of a joint industry project to tighten specifications for
anchoring mobile drilling rigs during the hurricane season” (Shell CDP survey 2010), the
firm also engaged in developing alternative ways to get the oil from a rig to a refinery to cope
in case of damage to pipelines. Interestingly, also firms with low awareness seem to pursue
technical, risk-sharing, and disaster relief measures. This finding corroborates Galbreath’s
(2014) results that adaptation measures are not always a specific response to climate change,
but part of more regular routines to minimize the impact of unfavourable physical conditions
whether these change or not.
The findings indicate, however, that before firms opt for a non-routine response and
take more rigorous measures to reduce geographic exposure (mentioned by 12 firms) or
26
diversify the product portfolio (mentioned by 5 firms), they need to experience a high degree
of vulnerability and a lack of control over their operations under current conditions. Only
when vulnerability is perceived as really high will this perception affect production volume
decisions – for example when the cost of upgrading facilities exceeds economic viability
(e.g., Penn West Energy Trust) – or geographical siting decisions (e.g., Chevron). In fact,
reducing exposure through geographical siting decisions is one of the more radical responses
that some oil and gas firms have been contemplating or implemented in certain cases and is
particularly considered as an option for new investments. Having a well-balanced portfolio
from a geographical point of view is considered a risk management strategy. As Anadarko
notes, “supply risks generated by extreme weather events and other physical impacts that
reduce or cease operation may be mitigated by enhancing production from unaffected
regions” (Anadarko CDP survey 2010). Geographical siting decisions have also been made
with regard to older facilities when firms operate in particularly risky areas or after
experiencing extreme weather events. Although oil and gas firms may sustain large costs for
repairs, sometimes the only possibility seems to write-off and decommission assets (e.g.,
Apache), or to make a strategic repositioning to less risky locations (e.g., Halliburton). A
well-diversified portfolio – not only geographically, but also in terms of products and assets –
is often mentioned as a way to reduce climate risks. However, we could not find much
evidence of firms deliberately diversifying their product portfolio in response to climate
events.
Finally, another non-routine response is cooperation, which has occurred both at
industry, region, and stakeholder levels (mentioned by 9 firms). Four firms mention having
contributed to developing reference industry plans; Chevron, for example, supported the
efforts of the American Petroleum Institute in developing industry’s plans for storm
preparation and return after storms. The objective of this kind of cooperation differs from risk
27
sharing, as it aims at sharing lessons-learned as well as resources to prepare for emergencies
in case of extreme weather events. Risks related to steady changes such as water availability
often lead firms to participate in regional initiatives as well as involvement in policy and
regulatory developments (e.g., Hess). Besides, firms collaborate with local industries to
reduce impact on local water resources and prevent conflicts with local communities for
access to resources (e.g., BG Group). On the whole, firms that seek to cooperate with others
appear to be seeing themselves as quite vulnerable and thus unable to cope with climate
disruptions singlehandedly.
Towards an Attentional Model of Corporate Climate Change Adaptation
In this article, we studied how the physical impacts of climate change become events that
firms notice and interpret in a way that leads to an active response to adapt to these impacts.
To guide our empirical research, we formulated two research objectives: the first was to
examine the influence of selective, situated and structured attention on the process of
generating awareness and assessing vulnerability; and the second was to investigate how the
attentional process affects the repertoire of adaptation measures firms consider. As such, we
tried to address two key constructs of the literature on adaptation to climate change –
awareness and vulnerability –, investigating how each plays out in a corporate context. To
highlight the peculiarities of firms as actors that engage in adaptation behaviour in terms of
the potential bias inherent in firm decision-making, we decided to draw on the ABV. This
view explains how the organisational structure and context create a selection bias towards
specific stimuli (Nigam & Ocasio, 2010; Ocasio, 2011; Rerup, 2009). Based on our findings,
we derived a model (see Figure 2) that provides an attentional perspective on corporate
climate change adaptation.
=================
Figure 2 about here
28
=================
In the model the adaptation process starts with the creation of awareness. As the
findings suggest, firms’ attentional processes affect awareness of climate stimuli. Firms
deemed certain stimuli irrelevant based on the preconceptions they had about climate change.
The main determinants of this selective attention were firms’ risk perception and perceived
uncertainty, which capture whether climate events would form a potential risk and occur
within a timeframe relevant to typical business decisions, respectively. The oil firms in the
sample mainly referred to events with a direct bearing on current business activities, such as
hurricanes, water scarcity and issues with drilling in the Arctic. These firms appear to have a
selection bias towards current events and against those materializing in a more distant future
(Slawinski, Pinkse, Busch, & Banerjee, 2015). One explanation for this temporal bias is the
use of historical data to analyse potential impacts. Historical data lead to an underestimation
of impacts, because the frequency of impacts is bound to go up in the coming decades (IPCC,
2012). Another explanation is the generic nature of the informational resources consulted.
Reports from the IPCC, for example, tend to focus on macro-level trends and thus do not
speak to firms directly in how climate change would affect their operations. Even firms with
a high risk perception and relatively low perceived uncertainty were showing a selection bias
towards short-term climate events. These firms used their own direct experience with
physical changes and damages as a yardstick, and failed to take note of rare events that might
have an impact in the future. These findings further elaborate Linnenluecke et al.’s (2012)
model of the adaptation process. In their model, Linnenluecke and colleagues emphasize the
objective characteristics of climate events as a determinant of corporate adaptation. Our
model instead highlights that such characteristics play a role, but only to the extent that they
are noticed by firms and are not filtered out by a selection bias.
We expected geographical proximity to indicate to what extent firms would be subject
to situated attention. The findings suggest that proximity to physical impacts does not create
29
awareness in and of itself, though. The knowledge firms have of their local ecosystems is a
more appropriate geographical indicator for how firms notice climate stimuli, but has a
surprising influence. Such local knowledge seems to reduce the impact of a high risk
perception and make perceived uncertainty of climate events irrelevant. In our model,
knowledge of local ecosystems is therefore presented as a moderator of these two factors’
relationship with awareness. Basically, firms with a well-developed knowledge base no
longer see climate events as rare and thus fail to notice the novelty of such events (Winn et
al., 2011). While knowledge reflects the impact of situated attention, not only the context
confines what firms notice, but also the organisational structures that firms have built up.
Firms claiming to have extensive knowledge were also the ones with the most advanced
organisational structures for risk management. This finding raises the question to what extent
these risk management structures would make firms more attuned to unusual climate events
or, as ABV would argue, disregard such rare events (Lampel et al., 2009; Ocasio, 1997). The
information used for this article could not provide a definite answer and further research
should investigate the impact of the risk management systems on the attention to rare climate
events. Given the relation between the knowledge of ecosystems and risk management
structures, we tentatively refer to such knowledge as exercising influence as a form of
structured attention (see Figure 2).
Once firms have created awareness, the question remains to what extent they perceive
their business as vulnerable to climate stimuli. As the model shows, firms’ attentional
processes affect how firms translate awareness into an assessment of their vulnerability. That
is, situated attention shapes firms’ vulnerability assessment, because firms’ perception of
their context plays a role in this regard. The main determinants of situated attention were
firms’ perceived impact of and past experience with climate stimuli. Regarding perceived
impact of climate stimuli, those firms that considered their business as relatively more
30
vulnerable were the ones with a more comprehensive perception of the relevant context. In
line with the view that vulnerability is not only an outcome of biophysical impacts but also of
many other socio-economic impacts (O'Brien et al., 2007), the more vulnerable firms were
considering the influence of the socio-economic context beyond direct physical impacts.
Firms that assessed their business as relatively vulnerable were those that highlighted the
indirect impacts from the market and broader business environment. These firms particularly
stressed financial impacts, although they also pointed at potential conflicts with local
communities due to more competition over natural resources. The interpretation of climate
stimuli was also affected by past experience. As ABV suggests, firms tend to use known
categories to interpret what might be unfamiliar events (Levinthal & Rerup, 2006; Ocasio,
2011). Firms learn about climate change based on past experience and use this experience to
assess a specific type of extreme event (Berkhout et al., 2006). Past experience thus allows
firms to build up a repertoire of available categories and better understand climate stimuli,
which helps to assess vulnerability.
Since vulnerability refers to firms’ perceived ability to cope with climate-related
disruptions (O'Brien et al., 2007), vulnerability assessment not only depends on the
perception of the context and past experience, but also on firms’ organisational structures.
The findings show that quite a few firms put great trust in their management systems to deal
with climate risks. As a consequence of having such organisational structures, firms interpret
climate stimuli as controllable. This form of structured attention moderates the influence of
firms’ perceived impact and past experience on perceived vulnerability, though. While firms
might consider direct and indirect stimuli, their potential impact is attenuated when firms
believe they have adequate coping mechanisms, such as a risk management system or
insurance. This sense of control might have an ambiguous effect on how past experience
relates to perceived vulnerability. While past experience creates the repertoire of categories
31
to interpret climate stimuli, a high reliance on existing structures might lead to a
misinterpretation of novel climate events (Winn et al., 2011), because firms keep seeing them
as familiar (Barr, 1998). Hence, whether existing structures and the sense of control they
imbue lead to a correct interpretation of the ability to cope with the events largely depends on
the type of events that firms face.
The last part of our model reflects how awareness and perceived vulnerability guide
firms in their decision how much effort to allocate to developing a repertoire of adaptation
measures. Due to the influence of selective, situated and structured attention on the process of
generating awareness and assessing vulnerability, ABV would predict that firms filter out
many stimuli and for the ones remaining develop routines to be able to deal with them. Since
noticing and interpreting all stimuli separately would put too much burden on a firm’s
informational processing, firms develop routines to reduce the effort to deal with recurring
stimuli (Ocasio, 1997). This tendency to opt for a routinized response clearly surfaced in the
findings. While firms tend to implement different adaptation measures, on the whole most of
them tried to leverage existing routines in risk management, insurance, and technical
adjustments. This observation corroborates previous findings that firms prefer to rely on
existing routines and tend to see climate change adaptation as another form of risk
management (Berkhout et al., 2006; Weinhofer & Busch, 2013). Firms in the sample seem to
have categorized extreme climate events as familiar, based on the belief that they are used to
working under harsh conditions.
Doubts have been raised, though, whether routines which are the outcome of learning
to deal with a specific type of extreme event, such as the increased intensity and frequency of
hurricanes, can be extended to other climate-related physical changes (Berkhout et al., 2006).
While routines can be developed for known events, other events of a highly uncertain and
discontinuous nature could still take firms at a surprise (Winn et al., 2011). However, some
32
firms did perceive climate events as rare and unprecedented, and considered engaging in
more non-routine responses (Lampel et al., 2009). A repertoire of non-routine responses
included geographic relocation (Linnenluecke et al., 2011), changing the product portfolio
away from affected business segments, and regional cooperation to make the whole industry
more resistant against physical changes. Only firms that assessed their vulnerability as high
were considering non-routine responses and they particularly emphasized their lack of
control to cope with physical changes singlehandedly as a reason for pursuing non-routine
responses. Nonetheless, a key question remains to what extent non-routine measures are a
response to physical climate impacts or the outcome of other strategic factors (Galbreath,
2011) that firms do not disclose. Since CDP probed firms specifically on the topic of climate
change, we were not able to draw any conclusions regarding this issue.
Conclusions
Based on a qualitative analysis of the oil and gas industry, this article investigates the
adaptation process to climate change of how firms select between alternative stimuli and
decide how much effort to spend on developing a response for those stimuli they choose to
act on. Building on previous research on corporate climate adaptation and drawing on the
ABV, the article argues that adaptation is the outcome of a process where firms are subject to
biases in the process of noticing climate stimuli and interpreting how these will affect their
business before they take action. The article identifies the relevant factors that drive
awareness, perceived vulnerability, and subsequent adaptation measures, which remained
ambiguous in previous research. The findings suggest that firms’ attentional processes – i.e.
selective, situated and structured attention – have a distinctive influence on the repertoire of
adaptation measures firms consider for coping with physical impacts. Furthermore, the article
shows that adaptation measures often consist of a set of routine measures, rather than non-
33
routine measures, even though the latter would be better aligned with the unprecedented
nature of climate events (Winn et al., 2011).
Implications for Research, Practice and Policy
The article makes several contributions to the literature. First, the emerging corporate
adaptation literature has created insight into the adaptation process, focusing on various
different factors such as awareness, vulnerability, risk, and uncertainty (Busch, 2011; Hertin
et al., 2003; Hoffmann et al., 2009). The article contributes to this literature by bringing these
different factors together in one model of corporate climate change adaptation. The model
suggests how these factors are related to one another in explaining the types of adaptation
measures firms take. Our model complements existing models of the corporate adaptation
process (Linnenluecke et al., 2012), as the model is grounded in empirical data and uses a
theoretical lens (ABV) that has only been used sparsely so far to explain corporate climate
adaptation (Galbreath, 2011). Second, adopting ABV as theoretical lens sheds a different
light on the adaptation process. The ABV lens highlights the potential bias created by
existing organisational structures and perceptions of the context firms are located in for the
way in which firms notice and interpret climate events. While a high degree of awareness and
relevant experience with operating under extreme physical conditions tend to be seen as
encouraging adaptation measures (Arnell & Delaney, 2006; Hoffmann et al., 2009), the
findings of this article suggest that these factors might also lead firms to disregard novel
climate stimuli or interpret them incorrectly as familiar events that can be dealt with using
existing routines. While the existence of such biases has been hinted at in conceptual studies
(Winn et al., 2011), our article provides empirical evidence that firms seem inclined to rely
on existing organisational structures and routines (Barr, 1998), even if stimuli might relate to
novel climate events.
34
Regarding implications for management practice, the findings of this article forewarn
managers of the impact of biases in managerial decision-making on corporate climate
adaptation. Since the findings suggest that firms run the risk of disregarding or
underestimating the impact of climate change, or using measures that might not be up to the
task, the main advice for firms would be to be cognisant of these biases. The model could be
a useful tool for firms to identify and understand potential biases, and in light of those
reconsider their adaptation measures. For example, to take away the influence of selective
attention in noticing climate stimuli, the findings imply that firms might be cautious when
using past experiences as a guiding principle to deal with future impacts. Notwithstanding the
usefulness of existing routines such as risk management systems, the novelty, rarity and
complexity of climate events suggest firms to consider exploring non-routine practices such
as cooperating with local communities or diversifying away from climate change-prone
operations. Moreover, while previous research has been shown that firms that use scientific
information as a source of decision-making are more likely to take adaptation action
(Linnenluecke et al., 2015), doubts can be raised whether scientific information on physical
impacts is indeed useful on an operational level. Since such information tends to be of an
aggregate nature, firms seem to have difficulties translating such information for it to have
relevance to their operations. It is thus advisable for firms to either collect information that is
more relevant to their own operations by conducting internal inquiries or to develop tools that
allow a better translation of aggregate scientific data so that the information is understandable
on an operational level.
With regard to policy implications, the findings of this article point out that
policymakers could aid small and medium-sized firms that lack the resources to notice
relevant stimuli by providing them with information tailored to their situation to make sure
that climate events are interpreted in a way that leads to meaningful action. Policymakers
35
could commission studies on climate-induced physical changes, the projected impacts on
infrastructure, and the financial implications for particular economic sectors or specific local
regions. By the same token, general preconceptions about climate change, often derived from
the pressure to contribute to mitigation, should not obscure the attention policymakers have
for adaptation, as adaptation concerns a different debate. While the balance seems to
increasingly tilt towards adaptation (Mogelgaard et al., 2015), compared to mitigation
adaptation might still not receive sufficient attention.
Limitations and Future Research
This article is not without limitations. First, as the information from CDP was of a crosssectional nature we could only provide a snapshot of the firm perspectives on corporate
climate adaptation. Considering the emergent state of the issue, corporate adaptation
measures will most likely become more elaborate in the years to come. Second, using CDP as
source of information does not allow interacting directly with the firms involved. Relating
adaptation measures to the way firms notice and interpret climate stimuli to create awareness
and assess vulnerability respectively was an outcome of our analysis. We were not in the
position to ask firms directly whether and/or how this process took place. Third, the oil and
gas industry, which we singled out for our analysis, could be a frontrunner in implementing
adaptation measures, given its particular awareness of climate change being one of the major
emitters, its vulnerability and its ability to adapt. Other industries might not have advanced as
much and thus show less variety in their adaptation behaviour. Besides, due to the position at
the start of the supply chain, oil and gas firms tend to experience climate change mostly as
direct physical impacts. For firms in other industries, however, physical impacts are
experienced in a more indirect manner, for example when organisations further up in the
supply chain are affected (Tashman et al., 2015). The occurrence of indirect physical impacts
36
adds a further level of complexity to the process of noticing and interpreting climate stimuli.
In view of the complexity and fragmented nature of global supply chains, it will be very
costly for firms to develop the systems to collect information about the physical impacts of
climate change. As a result, the same strong belief in existing risk management systems
might not be present in other firms.
While the body of research on corporate adaptation to climate-induced physical
impacts is growing (Berkhout, 2012; Linnenluecke, Griffiths, & Winn, 2013), there are still
many questions open. In this article, we focused on adaptation behaviour of individual firms
taking particular note of the influence of awareness and perceived vulnerability. As a followup to this article, future studies could take a more systemic perspective on corporate
adaptation. As was clear from the findings, knowledge of local ecosystems was an important
factor in the adaptation process. However, climate stimuli not only materialize as physical
impacts, but also as socio-economic impacts. More work is needed to gain more
understanding of how firms respond to a more comprehensive set of climate stimuli and how
physical stimuli interact with stimuli related to competitive or regulatory forces, or to
mitigation. Besides, adaptation often involves working together with other firms within the
industry or within the supply chain because climate impacts operate on a system level. It
would be interesting to investigate how the knowledge firms have of the supply chain and/or
industry as a whole would affect their adaptation behaviour. To what extent do firms take a
broader perspective on climate change impacts and how would this perspective affect their
repertoire of responses? Finally, while our model distinguishes between routine and nonroutine measures for conceptual parsimony, it would be interesting to further unpack how
measures develop into routines and which competences drive this process. Moreover,
research could study the impact of different adaptation routines on firms’ ability to
successfully adapt to climate change.
37
Declaration of Conflicting Interests
The authors declared no potential conflicts of interest with respect to the research, authorship,
and/or publication of this article.
Funding
The authors received no financial support for the research, authorship, and/or publication of
this article.
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Author Biographies
44
Jonatan Pinkse (PhD, Universiteit van Amsterdam) is a Professor of Strategy, Innovation,
and Entrepreneurship at the Manchester Institute of Innovation Research, Alliance
Manchester Business School, The University of Manchester. His research interests focus on
corporate sustainability, business responses to climate change, and renewable energy. His
articles have appeared in such journals as Academy of Management Review, Business &
Society, Entrepreneurship Theory and Practice, Journal of International Business Studies,
and Organization Studies.
Federica Gasbarro (PhD, Sant’Anna School of Advanced Studies) is a Post-Doc Research
Fellow at Sant’Anna School of Advanced Studies, Institute of Management, in Pisa, Italy.
Her research interests focus on corporate responses to climate change and sustainability
management. Her articles have appeared in such journals as Business Strategy and the
Environment, Corporate Social Responsibility and Environmental Management, and
European Management Journal.
45
Figure 1. Coding Structure.
46
Figure 2. An Attentional Model of Corporate Climate Change Adaptation.
47
Table 1. Key Factors Contributing to How Firms Notice and Interpret Climate Stimuli to Create Awareness.
AWARENESS
Key factors contributing to awareness
Risk perception of climate stimuli
HIGH




Perceived uncertainty of climate stimuli



Knowledge of local ecosystem


LOW
High geographical exposure and experience with extreme
events
Comprehensive view on potential impacts on business
Bias toward climate event occurrence prevalent in the
present time
Consideration of steady changes



Location of operations in stable environment
Climate event not within timescale of operations
Focus on extreme climate events only
Uncertainty about severity and exact timeline of climate
event occurrence
Bias towards private information based on direct
experiences
Some consideration of climate event occurrence in the
mid/long-term

Unclear relation between GHG emissions and climate
change
Bias towards public information based on historical data
Short-term future perspective on climate event occurrence
Understanding of frequency and intensity of extreme
weather events
Dedicated structures to deal with harsh conditions




Understanding leads to a perception of physical impacts as
business as usual
Assuming operations to be able to cope with extreme
events
48
Table 2. Key Factors Contributing to How Firms Interpret Climate Stimuli to Assess Their Vulnerability.
PERCEIVED VULNERABILITY
Key factors contributing to perceived
vulnerability
Perceived impact of climate stimuli
HIGH


LOW
Direct impacts on operations and indirect impacts
throughout the supply chain
Comprehensive focus on the physical as well as the market
dimension of climate change impacts


Direct impacts on operations
Narrow focus on the physical dimension of climate change
impacts
Past experience with climate stimuli

Lessons learned enable a detailed assessment of
vulnerability

Lack of experience makes an assessment of vulnerability
inaccurate
Controllability of climate stimuli


Indirect impacts are beyond the control of a single firm
Insurance and business contracts lack comprehensive
coverage of all possible damages

The ability to identify and manage risks provides a high
sense of controllability over physical climate impacts
49
Table 3. The Influence of Awareness and Vulnerability on Adaptation Measures.
High awareness/
High awareness/
Low awareness/
High vulnerability
Low vulnerability
Low vulnerability
-
-
Wait and see
Early and advanced assessment of climaterelated physical risk
Advanced assessment of climate-related
physical risk
Traditional risk identification
Technical solutions
Operational and procedural; Engineering and
design;
Maintenance;
Developing alternatives
Operational and procedural; Engineering and
design;
Investment in innovation;
Maintenance;
Development of alternatives
-
Risk sharing and shifting
Insurance; Shift increased costs to consumers;
Consideration of physical risks in contracts
and future acquisitions
Insurance
-
Disaster relief and continuity
Emergency, contingency and business
continuity plans;
Development of crisis management for clients
Emergency, contingency and business
continuity plans
-
Geographical exposure
Regional diversification; Consideration of
safe location for new investments
Decommissioning of old facilities
-
Portfolio diversification
Diversification by market segment
-
-
Stakeholder management to prevent conflicts;
Involvement in regulatory development
-
-
Wait-and-see
Risk assessment
Cooperation
50