A system dynamic approach for exploring the effects of climate change risks on firms' economic performance

Abstract

a b s t r a c tA number of studies have recently examined the potential relationships between climate change and the business community. The majority of such studies have emphasized statistical and benchmarking techniques to identify how climate change could have implications on firms' operations and their economic performance. These techniques draw primary data from questionnaire surveys and corporate environmental reports in an ex post basis, a fact that provide evidence in a linear, probabilistic and static character. These studies have provided limited insights regarding the future complex effects of climate change on corporate economic performance. This paper aims to contribute to this literature by developing a dynamic model to investigate the evolutionary trends of the relationships between climate change risks, financial performance and the operational processes of firms. The main scope is to identify how physical, regulatory, reputational and litigation risks will affect day-to-day operations. An integrated model will be established in order to improve managers' and academics' understanding of climate change and business performance. Four scenarios will also be tested to illustrate "what if" relationships in the presence of climate change risks. Finally, the proposed model is based on the corporate climate change management, system thinking, system dynamic and Stella software.

Assessing the Effects of Climate Change Regulations on the Business Community: A System Dynamic Approach

“…The broad scope of sustainability, the effects of time lags and the various scientific fields that engage in the concept of sustainability (e.g. sociology, economic, management, environmental science) render system dynamic thinking an effective tool for understanding the peculiarities of corporate environmental management and climate change risk issues (Abdelkafi and Täuscher, ; Nikolaou et al , ). System dynamic thinking assists managers in predicting the consequences of future environmental, social and economic change.…”

“…These studies utilize accounting and scoring/benchmarking systems to evaluate the quality of information disclosed through sustainability reports regarding the strategies undertaken by businesses to address climate change challenges (Demertzidis et al , ). Finally, a few studies build simulation models to improve our understanding of managers' perceptions of business climate change risks and how climate change risks affect business performance (Bleda and Shackley, ; Nikolaou et al , ).…”

Occupational health and safety within corporate social responsibility context: a balanced scorecard dynamic decision making model

“…Despite the assurances of the architects of the balanced scorecard regarding its capability to link lagging and leading indicators (Kaplan and Norton, 1992), many scholars support that long-run decision making and feedback loops between lagging and leading indicators will be better achieved by dynamic advance of indicators through a system dynamic software (Akkermans and van Oorschot, 2005;Nielsen and Nielsen, 2008;Barnabè, 2011). Similarly, some scholars focus on system dynamic balanced scorecard in the field of corporate sustainability, CSR and OHS (Liu et al, 2015;Tsalis et al, 2015;Nikolaou et al, 2015). Figure 3 illustrates a system dynamic balanced scorecard for CSR-OHS agenda.…”

Systems Thinking Approach to Sustainable Performance in RAMSAR Sites

“…From Figure 1, it is apparent that the study of sustainability is considered as relevant and not ly limited to environmental issues but also to the participation and impact generated by anisations. Considering the above ideas, authors such as Bansal and DesJardine [5], Banson et al ], Van Dyk and Pretorius [16], Fiksel [17]; Haywood et al [18] and Nikolaou [19], stress the need generate contributions under a comprehensive perspective that seeks short-term interventions and From Figure 1, it is apparent that the study of sustainability is considered as relevant and not only limited to environmental issues but also to the participation and impact generated by organisations. Considering the above ideas, authors such as Bansal and DesJardine [5], Banson et al [15], Van Dyk and Pretorius [16], Fiksel [17]; Haywood et al [18] and Nikolaou [19], stress the need to generate contributions under a comprehensive perspective that seeks short-term interventions and long-term improvements.…”

“…According to Fiksel [17], leading an organisation to a steady-state equilibrium requires structural changes that affect crucial aspects, such as the supply chain or the management of operations, in order to remain in a highly competitive environment and seek to ensure the life cycle of an organisational system. On this, Nikolaou [19] states that any organisation that does not adapt, at least, aspects such as costs, operations, management, and even reputation, faces the risk of disappearing in the face of problems related to sustainability. In this line of ideas, Haywood et al [18] converge in mentioning that moving towards sustainability, demands the coherent relationship of multiple actors and regulatory mechanisms that support change, partially or in the whole system.…”