Understanding the economic effects of abnormal weather to mitigate the risk of business failures

摘要

Warm or cold, wet or dry, weather impacts almost every industry as 70% of businesses are exposed to unexpected variations that influence demand for goods and services. The financial losses caused by adverse weather that did not seem material enough to have an impact or to require being managed a decade ago, may now do so as the frequency and severity of abnormal weather have dramatically increased. A surge in investigating the contribution of weather to financial distress is also prompted by more reliable weather data, and the development of new risk mitigation tools. Drawing upon the UK's retail sectors for empirical evidence, this paper provides a methodology to determine the contribution of weather to sales and to structure financial products to reduce the consequences of adverse weather on expected cash-flows. Our results open new research opportunities for weather to be considered as an additional cause of business failure.