Climate Risk Salience & Firm Actions: Evidence from Wildfires

Abstract

We examine how exposure to wildfires shapes corporate environmental behavior through increased climate risk salience. Using exogenous variation in firms' proximity to U.S. wildfires over a thirty-year period (1993-2022), we document three main findings. First, exposed firms increase their climate-related disclosure and sustainability reporting. Second, firms reduce their greenhouse gas emissions and achieve higher environmental rating scores. Third, firms respond through mitigation strategies, evidenced by increased geospatial dispersion and a higher likelihood of relocation following wildfire exposure. Additional analyses reveal that these effects are more pronounced for firms with multiple wildfire occurrences and in areas where local political ideology aligns with climate change beliefs. Our findings indicate that experiencing wildfire events triggers a shift in corporate environmental behavior, encompassing both disclosure and operational adaptations.