As climate change continues to pose a threat and increase the frequency and severity of flooding in the UK, it is crucial to delve deeper into the potential microeconomic impacts that could have wider implications for the macroeconomy. This study, undertaken by Benjamin Crampton, Rupert-Hu Gilman, and Rebecca Mari, focuses on understanding the characteristics of firms associated with flood risk and exposure, as well as the impact of flood events on corporate outcomes. Here are the key findings and insights from their research:
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Firm Characteristics and Flood Risk:
- Various sectors and regions display significant heterogeneity in terms of flood risk and exposure.
- Larger firms are more likely to locate in flood zones, while SMEs and natural-resource-related industries have historically been the most heavily impacted.
- The utilities sector shows the highest vulnerability to flooding, with over 10% of its employment and revenue at high-medium risk.
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Drivers of Flood Risk Exposure:
- Around 10% of UK business premises are situated in flood plains, with 20% shielded by flood defences.
- Exposure to flood risk varies across sectors and regions, with the utilities sector and agriculture sector being particularly vulnerable.
- Larger business premises are more likely to be situated in high-medium flood risk areas compared to smaller ones.
- Impact of Flooding on Corporate Outcomes:
- Small and medium-sized firms experience a significant increase in the probability of business termination following a flooding event.
- Flooding leads to reduced turnover, employment, and total assets for firms, with natural-resource-related sectors being hit the hardest.
- Large firms show more resilience, potentially due to their financial capacity and multiple branch locations.
In conclusion, as flooding becomes more frequent and severe, the vulnerabilities identified in this study could have profound implications for the macroeconomy. Understanding the impact of flooding on different sectors and firm sizes is essential for developing strategies to mitigate risks and build resilience in the face of climate change. It is imperative to address these economic implications and safeguard against potential disruptions in supply chains and financial channels. Taking proactive measures now can help ensure the long-term sustainability and stability of the UK economy in the face of environmental challenges.
