The improvised power outages first implemented by Pacific Gas & Electric (PG&E), one of the largest utilities in the United States, in early October 2019, provide a stark example of the desperate low-tech adaptation measures enacted to respond to natural mega disasters (Fuller, Reference Fuller2019). The short-notice premeditated shutdown of power transmission lines to about 2 million people (roughly 700,000 households and/or businesses) in huge areas of Northern California was aimed at preventing catastrophic wildfires like those sparked by power lines in Napa and Sonoma counties in late 2017. Concurrently, Southern California Edison, another major electricity company in the state, shut down electricity to about 13,000 households in Central and Southern California.Footnote ¹

Moreover, at the end of October 2019, both California utilities again preemptively responded to forecasted extreme winds and dry conditions with additional and more wide-ranging precautionary blackouts, affecting several million California consumers (Serrano, Rubenstein, & Morris, Reference Serrano, Rubenstein and Morris2019). At the same time these aggressive and widely unpopular adaptation tactics were implemented, PG&E’s malfunctioning equipment was believed to have started another large and fast-growing wildfire (the Kincade wildfire), which affected California’s wine country. In the fall of 2020, in the face of another record-breaking catastrophic wildfire season, which burned about 4.2 million acres (also severely affecting Oregon, Washington State, and Colorado), PG&E and other West Coast utilities were again preemptively shutting off power to millions of consumers for days at a time. Insurance companies were following suit with improvised low-tech adaptation by also preemptively revoking homeowners’ insurance policies (Fuller & Flavelle, Reference Fuller and Flavelle2020). And local governments, even in major cities like Portland, Oregon, were issuing state of emergency declarations that involved last-minute evacuation orders for a few suburban areas.

Also, in February 2021 a record-breaking snowstorm and historically frigid low temperatures triggered power outages across Texas,Footnote ² which in turn forced the emergency shutdown of many power generation plants to keep the entire state’s electricity generation system from collapsing into a statewide blackout, potentially lasting many weeks (Mulcahy, Reference Mulcahy2021). This improvised adaptation to a record-breaking weather-related disaster left 3–5 million Texans without power for almost a week (plus millions more without safe tap water for drinking for over 10 days) and resulted in at least 30 deaths (Mulcahy, Reference Mulcahy2021).

The frequency and severity of mega wildfires in California are aggravated by extremely dry and fast winds (known as El Diablo – “The Devil” in English – in Northern California and as the Santa Ana winds in Southern California) that damage electrical power lines, sparking flames. Such high-speed winds are not new, and their existence has not been linked to climate change (Nolte, Reference Nolte2019). Yet, warmer temperatures linked to climate change exacerbate other trends (e.g. scorching summers that generate overly dry vegetation, and millions of trees killed by drought and pine beetle infestations, which are triggered by warmer temperatures). These trends, combined with the winds and the aftermath of the unprecedented drought of 2011–2019, result in dangerous matchbox conditions that generate huge and rapidly spreading fires (Williams et al., Reference Williams, Abatzoglou and Gershunov2019). Worsening mega wildfires amplified by climate change are not unique to California. Indeed, beginning in October 2019 Australia’s east coast provinces were devastated by the severest wildfires in decades, blanketing Sydney and other major cities with dense smoke, destroying thousands of homes, and forcing the evacuation of tens of thousands of people (Cave, Reference Cave2019).

Indeed, in 2019 PG&E sought to declare bankruptcy in the face of about 30 billion USD in liability damages associated with powerline-sparked fires in California’s wine country in 2018. PG&E’s drastic actions were an improvised low-tech adaptation strategy by a company driven to declare bankruptcy, in part due to the increased frequency and severity of extreme weather events linked to climate change. Indeed, rolling blackouts are the most rudimentary low-tech reactive approach for adapting to California wildfire risks now understood to be exacerbated by climate change (Williams et al., Reference Williams, Abatzoglou and Gershunov2019).Footnote ³

PG&E has repeatedly failed for decades to implement basic proactive safety and fire prevention adaptation measures (such as tree trimming and transmission equipment inspections) to protect hundred-year-old power transmission installations (about 20,000 miles of power lines and almost 7000 transmission towers) that have exceeded their useful life (Blunt & Gold, Reference Blunt and Gold2019). PG&E’s lack of proactive adaptation and maintenance in the face of repeated record-breaking wildfire seasons speaks to extreme corporate negligence; the company apparently did not have knowledge of the exact age of thousands of transmission towers and power lines, which had not been inspected in decades (Blunt & Gold, Reference Blunt and Gold2019). Thus, stopping sales of electricity – PG&E’s core product – could be deemed a desperate last-minute strategy to avoid more damage claims in the middle of bankruptcy proceedings, which were themselves originated by previous catastrophic wildfires.Footnote ⁴

Do PG&E’s response to wildfires – wildfires that year after year break historical records – illustrate problematic adaptation strategies adopted by companies to deal to natural disasters exacerbated by climate change trends? If so, how then might businesses adapt to adversity caused by climate change in a way that is less costly and disruptive? These are the core questions we explore in our book.

Business school scholarship indifference to climate change.

Writ large, the response of business to natural disasters seems to involve a dynamic that begins with denial, advances through indifference, delay, avoidance, and other forms of resistance, then moves on to proactive preparedness. When catastrophic consequences of natural disasters first occur, the business response pattern is one of last-minute haphazard adaptation measures. If a company survives the event, its managers tend to develop an arrogance about their ability to confront the next disaster; or they may decide that catastrophic weather events are flukes of nature. The obstinacy of this dynamic is much stronger for slow-onset, climate-change–induced adverse conditions whose negative effects are imperceptible in the short term.

The resistance of businesses to prepare and recognize the importance of climate change adversity conditions is also pervasive among the most prestigious academic business management journals. Almost all top academic business journal editors as well as the leaders of business academic societies stress, in a pro forma way, the need to study and address “grand challenges” like climate change. In reality, they do not seem to view climate change and businesses’ response/lack of response to it as a legitimate area for academic research, as evidenced in the very few papers addressing business responses (or lack thereof) to climate change actually get published in the premiere business research journals.

The dearth of business and climate change articles in top academic business journals has attracted the attention of scholars who specialize in examining academic publications trends. Goodall’s (Reference Gopal2008) bibliographic study found that between 1970 and 2006, the top 30 management journals (by impact factor) published a total of 31,000 articles. Of those, only 9 (~0.03 percent) mentioned “global warming” or “climate change” in the title, abstract, or keywords. This study also indicated that the top two cited management journals, Academy of Management Journal (AMJ) and Academy of Management Review (AMR) published no articles mentioning these terms in the title, abstract, or keywords from the mid-1970s to 2006.

This trend was also seen in the 1998 through mid-2015 period, with only 32 out of 22,903 (0.15 percent) articles published in the top 23 elite business academic journals mentioning “global warming,” “climate change,” “greenhouse,” or “carbon” in the title, abstract, or keywords (Diaz-Rainey et al., Reference Diaz-Rainey, Robertson and Wilson2017). For this period, the most elite (by impact factor) general management journals, AMJ, AMR and Administrative Science Quarterly (ASQ) published just two articles out of a total of 721 (0.28 percent) (Diaz-Rainey et al., Reference Diaz-Rainey, Robertson and Wilson2017). The tendency to almost completely neglect climate change is worse in other business academic disciplines in the 1998 to mid-2015 period. For this timeframe, out of 8,737 articles published in the top three finance journalsFootnote ⁵ and top five marketing journals (by impact factor), zero mentioned “global warming,” “climate change,” “greenhouse,” or “carbon” in the title, abstract, or keywords.Footnote ⁶ To be sure, given that these bibliographic analyses focused on title, abstract, and keywords, the actual number of publications studying topics related to climate change is likely higher. For instance, in the 2011–2020 period, we identified five additional manuscripts published in the top four empirical general management journals (AMJ, ASQ, SMJ, and Organization Science) that examined how natural disasters affect business strategies. Yet, to illustrate the extent of disregard, even if climate change-related manuscripts published by elite business academic journals numbered a thousand percent greater, the proportion of articles examining climate change-related topics would still be only 1.5 percent. Since 2015, there has been a small increase in the number of articles focusing on climate change-related topics in top business academic journals, but the tendency to give marginal attention to this topic remains.

Strategic management theories and climate change adversity. The lack of attention to how businesses respond to climate change adversity is also reflected in the dominant strategic management theory frameworks. Understanding how firms change their strategies to fit the external environment is a foundational question in strategic management. A business’ external context is widely understood to be a key driver of its strategic choices. Accordingly, multiple strategic management theories rely on an open systems perspective that gives prominence to a business’ external contextual factors as key drivers of strategic choices and behavior (e.g. institutional theory, contingency theory, population ecology, resource dependency theory, stakeholder theory, and industrial organization framework). Yet, for these theories “external context” is usually constrained to industry, economy, and, to a lesser degree, government and non-profit actors. Seldom is the natural environment given more than lip service and in most cases it is assumed away.

Until recently, in the absence of visible harmful effects from climate change, the tendency to ignore these adverse conditions has made sense for strategic management scholars. To be sure, it is well understood that over the last 10,000 years, weather, climate, geological, and ecological conditions have been exceptionally steady, particularly when compared with other geological periods (Rockström et al., Reference Rockström, Steffen and Noone2009; Whiteman & Cooper, Reference Whiteman and Cooper2011). Interestingly, the growing organization and natural environment literature has focused mainly on examining the negative impacts of organizations on nature, while paying relatively little attention to the reverse relationship: the effects of nature’s adverse biophysical conditions on organization strategies and behavior (King, Reference King1995; Linnenluecke & Griffiths, Reference Linnenluecke and Griffiths2010; Winn et al., Reference Winn, Kirchgeorg, Griffiths, Linnenluecke and Gunther2011). Notable exceptions to this trend involve seminal research done by Martina Linnenluecke, Monika Winn, Ans Kolk, Jonathan Pinkse, Andrew Hoffman, Peter Tashman, Tima Bansal, Gail Whiteman, and Nardia Haigh among others.

Natural scientists, however, have increasingly stressed the growing confidence in the global evidence that climate change trends are exacerbating slow-onset nature-adversity conditions and extreme weather events. Accelerating climate change trends and their associated detrimental effects are also receiving increased attention from top corporate managers, policymakers, the media, and international stakeholders. Despite the increasing understanding of – and agreement about how – climate change is linked to the worsening of weather-related natural disasters and slow-onset, adverse conditions in nature, fierce debate remains – particularly in the United States – among politicians and interest groups about the best ways to manage its effects. Debates over climate change causes and solutions have become a quintessential ‘culture war’ issues. These discussions include trade-offs between economic prosperity and environmental protection, as well as, competing ideological, political, and geopolitical factors and institutional logics.

In our book we contribute to the debate by developing conceptual ideas and propositions seeking to understand how businesses respond to climate change-related natural disasters and slow-onset adversity conditions. In particular, our book focuses on:

1. 1. Examining how and why nature’s adversity conditions and weather-related natural disasters linked to climate change affect different business adaptation strategies and performance.

2. 2. Identifying how the relationships between climate change adversity conditions and business adaptation strategies are moderated by firm characteristics.

To examine our conceptual ideas and propositions, in the second part of our book we describe and discuss multiple empirical studies involving panel data analyses of: (a) Western U.S. ski industry adaptation to warmer temperatures, and (b) the effect of natural disasters on the foreign investment of European multinational corporations.

Challenges of Climate Change Mitigation and the Need for Adaptation

We use the term ‘adaptation’ to refer to business efforts and strategies that aim to achieve a better fit with a changed external environment. Adaptation to climate change is defined by the International Panel on Climate Change (IPCC) as: “Adjustment in natural or human systems in response to actual or expected climatic stimuli or their effects, which moderates harm or exploits beneficial opportunities” (IPCC, 2014b). Given that adaptation has just recently been embraced, examples of it tend to be limited to infrastructure and technological efforts adopted by vulnerable companies like ski resorts that produce artificial snow (Linnenluecke & Griffiths, 2015; Tashman & Rivera, Reference Tashman and Rivera2016). However, business adaptation to climate change can include a wide variety of strategies such as: diversification at the product, service and/or geographic levels, mergers and acquisitions of competitor companies, government lobbying for friendlier adaptation restrictions and incentives, and purchasing of insurance and other financial hedging instruments.

Adaptation is distinguished from mitigation of climate change, the latter “[involving] actions that reduce the rate of climate change … by limiting or preventing greenhouse gas (GHG) emissions and by enhancing activities that remove these gases from the atmosphere” (IPCC, Reference Kasperson, Renn and Slovic2014c). Mitigation is, of course, the safer and more effective approach for dealing with the negative effects of climate change. However, climate change adaptation efforts are fundamental and urgently needed to guarantee the well-being of humanity, even if at some point technological and political-economic breakthroughs allow us to implement dramatically successful climate change mitigation (Haigh, Reference Haigh2019). This urgent need for adaptation to climate change is justified for multiple reasons.

First, humanity has so far failed dismally in its efforts to reduce GHG emissions sufficiently to limit average earth warming to under 2 °C relative to preindustrial levels. A global average increase of 2 °C above preindustrial times (1850–1900) was in the past regarded as the maximum temperature increase humans could adapt to without risking dangerous climate change-related harm. More recently, the IPCC indicated that an average increase of 1.5 °C above preindustrial levels is a safer boundary, one that would allow humans to adequately cope with the harsh negative effects of climate change and avoid widespread high risk (IPCC, Reference Kobrin, Basek, Blank and La Palombara2018). Even if all of the promises agreed to in the 2015 Paris Agreement were fully implemented, average earth temperatures are projected likely to rise by about 3.2 °C by the end of this century (UNEP, 2019).Footnote ⁷ To hold warming to below 2 °C starting from the year 2020, countries would have to triple their GHG reduction commitments under the Paris Agreement to about 2.7 percent per year on average (Christensen & Olthoff, Reference Christensen and Olthoff2019; UNEP, 2019). Staying within the safer 1.5 °C average increase range would require drastic reductions of GHG, allowing a net zero level to be achieved by 2050 (IPCC, Reference Kobrin, Basek, Blank and La Palombara2018). Earth has experienced an average temperature increase of about 1 °C, as measured from preindustrial times (IPCC, Reference Kobrin, Basek, Blank and La Palombara2018). Though many consider this amount of average warming insignificant, in fact, a 1 °C global average temperature increase over approximately 100 years is dramatic (IPCC, Reference Kobrin, Basek, Blank and La Palombara2018).

Worse, the United States and other countries (e.g. Australia, Brazil, China, and India) have been engaging in policies that not only exacerbate climate change but also explicitly and falsely deny that climate change even exists. To be sure, global emissions of GHG rose at an annual average rate of about 1.5 percent during the decade beginning in 2009, putting the planet on pace for an increase of about 4 °C in global average warming by 2100 (UNEP, 2019). Moreover, even in the face of this worsening trend, after pulling out of the Paris Agreement, in 2017, the Trump administration continued to aggressively derail international efforts to agree on meaningful improvements in GHG reduction commitments and to create a regulated global carbon market.

President Joe Biden, on his first day in office, signed an executive order to have the United States rejoin the Paris climate agreement (Restuccia, Reference Restuccia2021). He also initiated the multi-year process that would reestablish President Obama’s climate change mitigation regulations and quickly reverse multiple climate change-aggravating presidential executive orders enacted by the Trump administration. Indeed, the new Biden administration aims to tackle climate change as a top priority and seeks to position the United States as a global leader in adopting stringent and legally binding rules to reduce greenhouse gases. However, President Biden’s executive orders can quickly be wiped out with the stroke of a pen by a subsequent president’s executive action. For more long-lasting regulations, the Biden administration needs the cooperation and approval of the U.S. Congress, which at this writing has a 50–50 divided Senate, with Democrats holding only the slightest majority, with Vice President Kamala Harris’ authority to cast tie-breaking votes. Furthermore, opposition from Democratic senators from states like West Virginia with large fossil fuel industries has to be overcome. It is also important to note that cap-and-trade legislation to mitigate climate change failed to pass in the Senate during the early years of the Obama administration, even when Democrats had a 60-vote, filibuster-proof majority.

Second, adaptation is also fundamental to long-term global prosperity and survival because the cumulative negative effects of climate change will continue for many centuries, even if – what seems like a miracle now – humans could manage to completely stop emitting greenhouse gases today (IPCC, Reference Field, Barros and Dokken2013). That is, even under this most optimistic climate change mitigation scenario, our distant descendants – many generations beyond our great grandchildren – will likely still experience adverse conditions from climate change such as an acceleration of slow-onset increased average temperatures, rising oceans, and desertification. Also, they will be more likely to experience frequent and severe climate-related extreme events like heat waves, hurricanes, floods, droughts, and wildfires.

These deteriorating nature-adversity conditions may accelerate and generate cascading disaster conditions resulting in record fatalities, economic loss, and other hardships for humanity. The year 2020 offered an illustration of such a cascading catastrophic dynamic, one that combined multiple natural disasters exacerbated by climate change (e.g. in the U.S. a record number of wildfires occurred, and the highest number of named hurricanes were recorded), along with other natural calamities not related to climate change (e.g. the COVID-19 pandemic).Footnote ⁸ To be sure, the actual amount of economic loss and the loss of human life lost due to climate change is currently very difficult to estimate (IPCC, Reference Edenhofer, Pichs-Madruga and Sokona2014a). Yet, already observed examples include natural disaster-related fatalities, business bankruptcies, and damages to infrastructure (some reaching catastrophic levels) (Linnenluecke & Griffiths, 2015). Also, the forced displacement of large populations due to increased lack of fresh water, decline in crop yields, collapse of fisheries and coral reefs, spread of tropical diseases and pests to colder latitude countries, and the acceleration of massive biodiversity loss and extinction of animals and plants, among other factors, is on the rise (IPCC, Reference Edenhofer, Pichs-Madruga and Sokona2014a; WRI, 2019).

Third, climate change mitigation is strongly opposed by multiple powerful actors in business and government. Some who oppose it are driven by conspiracy theories suggesting that mitigation is not needed because climate change is a “hoax.” Others claim climate change mitigation is too costly in the short term and politically unfeasible because:

• Climate change effects are uncertain and long term;

• Mitigation costs mostly fall on economically key industries (e.g. oil companies, utilities, heavy manufacturing industries, and agriculture);

• Reliable alternative renewable energy sources and/or safe nuclear power are lacking;

• Companies and governments in developing countries benefit from potentially substantial free-riding;

• The ‘public good’ nature of mitigation benefits prevents companies from exclusively profiting from their mitigation efforts;

• Emerging market countries are not yet willing to reciprocate by proportionately matching the potential GHG reductions of industrialized countries.

Fourth, another reason that company managers oppose efforts to tackle the causes of climate change is a common belief – unfounded or not – that proposed mitigation regulations and carbon taxes imposed by politicians in Washington, or worse by international UN diplomats, are likely to increase their costs unfairly and dramatically, or even drive their businesses into bankruptcy. These managers ardently object to changing their core business strategies in response to climate change regulations and carbon taxes since these efforts are perceived to benefit other countries more than the U.S. (e.g. China and India) and/or future generations at the expense of present generations (Dolsak & Prakash, 2015, Reference Dolsak and Prakash2018).

Fifth, rationally or not, Republican politicians in the U.S. view climate change as the Democrat’s excuse to enact – in the name of environmental protection – favored liberal policies that tend to burden key sectors of the economy that are major political supporters and donors primarily of the Republican party (e.g. oil, gas, and coal mining).

Sixth, geopolitically, climate change mitigation efforts also confront a very difficult political dynamic with challenges of a different kind. For the leaders of many developing countries, potential climate change mitigation regulations are seen as a throwback to colonial times. They fear that such regulations would allow former imperial powers to adopt draconian restrictions on developing countries self-management of domestic industries and exploitation of their own valuable natural resources. Additionally, developing countries would be asked to quickly transition to a carbon-free economy – one that replaces cheaper fossil fuels abundant in many non-industrialized nations in exchange for token promises of future financial aid.

Now, obviously many of these perceptions a are not based on the full facts liable to be driven by ideology and entrenched economic interests. However, these views are strongly held by many powerful actors whose support is fundamental if any meaningful global climate change mitigation policies are to be adopted by most actors (Dolsak & Prakash, 2015, Reference Dolsak and Prakash2018).

The benefits of adaptation to climate change. Initially, adaptation was opposed by both environmentalists and opponents of climate change mitigation (Linnenluecke & Griffiths, 2015). On the one hand, environmentalists saw adaptation efforts as a way of deflecting attention from climate change mitigation. On the other, opponents of climate change mitigation were afraid that embracing adaptation would signal an acceptance of human responsibility for climate change (Linnenluecke & Griffiths, 2015). Developing countries also took the view that emphasizing adaptation involved admitting a shared responsibility to deal with the negative effects of climate change. Additionally, in the late 1990s and the early 2000s there was limited initial scientific evidence linking climate change to deadly disasters (this is no longer the case). To be sure, adaptation did not receive much attention during the first 20 years of international negotiations under the UN Framework Convention on Climate Change (UNFCC) (Linnenluecke & Griffiths, 2015). It was only when the 2010 Conference of Parties (COP) in Cancún convened that a formal adaptation framework was approved.

Over time, however, all camps have increasingly accepted that adaptation is an integral part of dealing with the challenges of climate change. Of course, as explained at the beginning of this chapter, the best adaptation strategy combines: (1) concerted global mitigation efforts to aggressively limit GHGs so that average temperatures do not exceed (1.5–2 °C) humanity’s ability to cope; and (2) efforts that allow organizations and societies to cope with and be more resilient to climate change’s long-term detrimental effects, effects that are likely to linger for many centuries to come (IPCC, 2014b). These points cannot be overstated. Both mitigation and adaptation are mutually reinforcing and necessary to confront the negative effects of climate change (Haigh, Reference Haigh2019). Adaptation is not a panacea; it is a complement to climate change mitigation.

The emerging realization that even drastic global efforts to reduce GHGs may not be able to forestall climate change’s severe negative effects has begun to shift popular attention toward working out adaptation alternatives (IPCC, Reference Kobrin, Basek, Blank and La Palombara2018). Additionally, given the difficult political and economic nature of climate change mitigation efforts, adaptation has begun to receive more attention by policy makers, environmentalists, and business managers. Shifting the focus of the climate change debate to also include adaptation has important advantages:

• 1. Climate change adaptation benefits are shorter term and can be more directly and locally enjoyed by those engaged in it. So, it can be adopted by individual companies, industries, communities, and countries without requiring the large collective action efforts necessary for mitigation (Dolsak & Prakash, 2015; Haigh, Reference Haigh2019).

• 2. Adaptation’s free riders (those cheating on adaptation efforts and expecting to still enjoy its benefits) can be more easily excluded from enjoying the direct benefits (and spillovers) of adaptation implemented by others (Dolsak & Prakash, 2015).

• 3. Engaging in climate change adaptation brings increased attention to the negative consequences, costs, and some of the opportunities offered by climate change mitigation. As such, it can help to soften the strong political and economic opposition to mitigation (Dolsak & Prakash, 2015). Additionally, the greater interaction between business managers and environmentalists with expertise in climate change adaptation may increase mutual rapport and trust and lead to new political coalitions in favor of climate change action, including mitigation.

• 4. Some companies already have experience with risk management and preparedness that allows climate change adaptation to be reframed as part of routine risk management.

Contents of Book

Following this introduction, in Part II (Chapters 2–5) we develop a conceptual framework that contributes to understanding first, how business adaptation is shaped by slow-onset nature-adversity conditions; and second, how weather-related natural disasters affect foreign subsidiary investment by multinational corporations (MNCs). Examining how MNC subsidiary foreign investment is affected by natural disasters can help provide an indication of how other businesses may adapt to future extreme events generated by climate change (Oh & Reuveny, Reference Valente2010). About 75 percent of the natural disasters occurring since the year 2000 are weather-related disasters that were exacerbated by climate change (Oh, Oetzel, & Rivera, Reference Oh, Oetzel, Rivera and Lien2020). Additionally, given MNCs’ high exposure to these disasters in multiple countries, their responses to these extreme events can guide other businesses as they adapt to climate change trends accelerate.

In Chapter 2 we build on resilience theory to provide a framework of analysis to illustrate how the intensity of nature adversity generated by climate change affects and limits business adaptation. Adaptation responses can span a broad range of strategies, beginning with unawareness to deliberate ignorance of nature-adversity conditions. Next, we examine protective adaptation – the quest to preserve the status quo of core business features – including substitution of nature’s resources and services, buffering from negative conditions, government lobbying, and engaging in alliances or mergers and acquisitions. And then, at the highest levels of nature adversity, we look at adoption of diversification strategies (e.g. in terms of products/services, industry participation, and geographic location) or even the abandoning of businesses altogether.

In Chapter 3 we continue exploring how firms adapt to the intensity of chronic nature-adversity conditions. Our goal in this chapter is to contribute to the debate found in the strategic management literature on whether external adversity tends to be positively or negatively related to adaptation. We propose an inverted U-shaped relationship between nature-adversity intensity and protective adaptation, such that firms facing lower or higher than medium levels of nature-adversity intensity tend to adopt lower levels of protective adaptation. This is because of the interplay between latent counterbalancing mechanisms. First, at mild intensity levels of nature-adversity, organizational inertial forces constrain organizations’ willingness to adapt. Second, at medium levels coalition-building and internal organizational politics allow managers to deploy adaptation resilience capabilities. Third, at severe levels of nature-adversity conditions, growing natural forces eventually impose limits beyond which protective adaptation becomes unviable. Additionally, we discuss how our proposed inverted U-shaped relationship between nature-adversity intensity and protective adaptation is likely to be moderated by several firm-level and institutional context-level characteristics (i.e. age, public ownership, slack resources, and stringency of regulations).

In Chapter 4 we shift the focus of our analytical framework to the effect of natural disasters on subsidiary-level foreign direct investments by multinational corporations. The question of where to compete internationally is one of the most fundamental questions in corporate strategy. In 2018, there were approximately 500,000 MNC subsidiaries operating around the world, generating about half of all international trade (European Commission, as cited in Kordos & Vojtovic, Reference Kordos and Vojtovic2016; World Atlas of Global Issues, 2018). Given the very large number of MNC subsidiaries, it is critical to understand how MNCs adapt to extreme natural conditions that trigger more frequent and severe natural disasters. Thus, in this chapter we conceptually examine how natural disasters, compared to industrial disasters and terrorist attacks, shape MNCs’ foreign market entry and expansion. We also investigate whether MNC subsidiary-level investment is more likely to decrease in response to the specific types of natural disasters that result in a higher number of fatalities. In addition, we also elaborate on how country governance characteristics (i.e. regulatory quality, rule of law, democratic freedoms, political stability, and corruption levels) moderate the relationship between disasters and MNC subsidiary-level investment. We examine these moderating effects because the quality of governance and the strength of the institutions in a country tend to have a significant impact on the ability and willingness of governments to respond to disasters within their borders.

In Chapter 5 we continue to develop our conceptual framework, describing how MNCs’ foreign subsidiary investments are affected by natural disasters. We do so by examining whether MNCs are able to gain experiential advantages from managing through low or high impact natural disasters that enable them to enter and expand into countries experiencing similar risks. We also conceptually discuss whether advantages accruing from MNCs’ subsidiary-level experience with natural disasters are greater than those gained as a result of terrorist attacks or technological disasters. Discontinuous risks, such as natural disasters, which are often difficult to anticipate or predict, have received little attention in the strategic management research. Much of the research in this area has focused on firms’ experience with continuous risks, risks that are steady and more predictable in a firm’s operating environment.

In Part III, we detail and extensively discuss empirical research seeking to examine the research questions and test the propositions developed in the book’s conceptual chapters. Chapter 6 focuses on two key research questions highlighted in Chapter 3: How does nature-adversity intensity affect the adoption of business protective adaptation strategies? And how do firm-level and institutional-level factors moderate the relationship between nature-adversity intensity and protective adaptation? In Chapter 6 we also test the propositions developed in Chapter 3. To do this, we study how the U.S. ski industry has adapted to warmer temperatures. The ski industry is highly vulnerable to nature adversity associated with changing climate conditions and reportedly lost around 1 billion USD in revenue from 1999 to 2010, attributable to lower demand for skiing because of warmer temperatures and uncertain snowfall (Burakowski & Magnusson, Reference Burakowski and Magnusson2012; Zeng, Broxton, & Dawson, Reference Zeng, Broxton and Dawson2018). In Chapter 6 our quantitative analysis examines adaptation responses by large ski resorts in the Western United States from 2001 to 2013 (approximately 85 percent of the commercially open skiable acres in that region). Our data tracks snowfall and temperature conditions for Western U.S. ski resorts from 1995 to 2013 and includes an average of 75 ski resorts per year, resulting in panel data set of 850 firm-year observations over the 2001–2013 period. Our findings show that firms facing medium nature-adversity intensity levels (measured in terms of temperature) appear more likely to engage in higher adaptation while those experiencing low and high natural adversity intensity show a tendency for lower adaptation, yielding an inverted U-shaped relationship. Our findings also suggest that firm age, the stringency of the regulatory environment, and the presence of slack resources induce a flattening of this inverted U-shaped relationship. Public company status, however, induces a steepening of the inverted U-shaped relationship.

In Chapter 7 we empirically test the propositions and hypotheses developed in Chapter 4. Specifically, we examine whether natural disasters, compared to industrial disasters and terrorist attacks, affect multinational corporations’ foreign subsidiary investment. We also analyze if this effect varies in response to the different subtypes of natural disasters that result in the highest number of fatalities. Then, we test if stronger institutional environments and better country governance positively moderate the relationship between disasters and foreign subsidiary-level investment. We test our hypotheses using a panel dataset that includes 31,285 observations from 71 European Fortune Global 500 MNCs and their subsidiaries operating across 101 countries during the period 2001–2006. Our findings indicate that MNC foreign subsidiary investment is likely to decrease in response to severe terrorist attacks or technological disasters but not in response to natural disasters, except for the case of windstorms and related water surges, which are the deadliest weather-related natural disasters. For natural disasters, the likelihood of MNC subsidiary-level disinvestment increased with higher host country democratic freedoms and decreased with higher host country’s regulatory enforcement quality.

In Chapter 8 we empirically examine the research questions and propositions conceptually discussed in Chapter 5: Are MNCs able to gain experiential advantages from managing during natural disasters – including disasters with both low and high impacts – that enable them to enter and expand into other countries experiencing similar risks? And how do MNCs’ experiences with natural disasters compare to experience associated with terrorist attacks and technological disasters? We used a panel dataset with 57,500 observations from 106 European Global Fortune 500 MNCs and their subsidiaries operating across 109 countries during a seven-year period, 2001–2007. We find that experience with high-impact natural disasters (as well as terrorist attacks and technological disasters) can be leveraged for expansions into an existing host country, but not for initial entry into other countries experiencing similar high-impact disasters. We also find that experience with low-impact natural disasters does not appear to reduce the negative effect of disaster severity on expansion (or entry). Yet, experience with low-impact terrorist attacks and technological disasters does show a significant positive moderating effect on the relationship between disaster severity and expansion. A notable exception to the lack of significant moderating effects on the MNC entry models is the case of floods. Experience with high-impact floods does show a positive and significant moderating effect on the negative link between disaster severity and MNC entry.

Lastly, in the concluding part (Chapter 9) we discuss our main findings, contributions and research limitations, outline a future research agenda, and propose implications for business managers and policy makers.