Assessing the climate change exposure of foreign direct investment

This study deploys newly available data to examine the exposure of multinational companies’ overseas investments to physical climate risks. Globally, foreign investments are significantly exposed to lower physical climate risks, compared with local firms across countries. Within countries however, the differences of physical climate risks between foreign and local facilities are small. We also examine China, as it is fast becoming one of the largest sources of outward foreign investment across the globe. We find that foreign direct investment from China is significantly more exposed to water stress, floods, hurricanes and typhoon risks across countries, compared with other foreign facilities. Within host countries however, once again the physical climate risks of Chinese overseas facilities are comparable to those of non-Chinese foreign investments.

Xia Li, Kevin P. Gallagher