Australia’s corporate climate response has, for good reason, focused on emissions and Net Zero targets. While essential, new research is uncovering an overlooked determinant of climate readiness: national culture. Specifically, how deeply held values – about authority, risk and the future – shape how businesses adapt to worsening climate conditions.

If Australia is to improve climate resilience domestically and across our region, public policy must account for cultural context. Regulation alone may not be enough.

The current disclosure and policy frameworks for business – including Australia’s recently implemented mandatory climate-related financial disclosures – rightly emphasise the transition to a low-carbon economy. But what about physical climate risks? Floods, fires, heatwaves and storms are intensifying. These events directly impact corporate assets, cashflows and capital allocation. Yet they remain under-analysed in policy and under-reported in company disclosures.

The global context is shifting rapidly. Just this week, the International Court of Justice issued a landmark advisory opinion affirming that states have legal responsibilities to address climate change. While non-binding, the ruling underscores that climate harm carries legal – not just environmental – consequences. It adds urgency to how governments and companies prepare for physical climate risks.

In a recent study of more than 300,000 firm-year observations across 51 countries, we explored how companies respond to these physical climate risks – and why they respond so differently. Our findings challenge the assumption that all companies (or countries) react uniformly to climate danger. They do not.

Our study shows that firms in countries with deeply embedded hierarchy and centralised authority – what cultural psychologists call “high power distance” – are slower and less flexible in responding to climate threats. These firms tend to delay adaptation, underinvest in resilience and maintain rigid capital allocation processes that ignore environmental volatility. This leads to lower investment efficiency and, ultimately, greater financial vulnerability.

Contrast this with firms in cultures that score high on “uncertainty avoidance” – those that value structured planning, formal processes and long-term thinking. These firms were significantly more proactive in integrating climate risk into their financial decision-making. They invested earlier, hedged more strategically and maintained stronger risk buffers.

In short: culture shapes climate response. And not all cultural traits are created equal when it comes to resilience.

Why this matters for Australia

Australia sits in a unique position. We are culturally Western, with relatively low power distance and high uncertainty avoidance: traits that, in theory, should enable stronger climate adaptation. However, the practical reality is more complex.

Our business sector still operates in a risk-averse, compliance-heavy climate disclosure regime, where adaptation is often reactive rather than anticipatory. While some sectors (e.g., finance or agriculture) have embraced climate scenario planning, others remain focused on minimum regulatory compliance.

More importantly, Australia’s economic footprint – through trade, investment and regional development – spans cultures with vastly different traits. From high trade volumes with north and south Asia, to resource extraction in Southeast Asia, to agricultural or infrastructure projects in the Pacific, Australian firms are exposed to cross-cultural climate risks every day. The effectiveness of climate policy at home must therefore account for how partner countries and subsidiaries abroad may behave under stress.

So, what should governments, including in Australia, do about this?

We offer three recommendations, grounded in the research and applicable across sectors.

1. Move from uniform disclosure to differentiated expectations

Mandatory disclosure is essential, but it should be context sensitive. Regulators could develop sectoral and cultural risk guidance – similar to how financial regulators account for country risk in capital adequacy – to encourage firms operating in high power-distance cultures to adopt more decentralised decision-making on climate risk, or to strengthen local scenario planning.

In practice, this means moving from a “one-size-fits-all” ESG checklist toward frameworks that incorporate behavioural insights and cross-cultural governance dynamics.

2. Equip regulators and boards with culture-focused diagnostic tools

Financial regulators including ASIC and APRA, as well as other agencies, could work with behavioural economists and cultural experts to build diagnostic tools that identify organisational cultural bottlenecks in climate responses. These tools would help corporate boards self-assess not just for whether they disclose risks, but also whether their governance structures allow for flexible and rapid climate action.

This approach builds on Australia’s strength in behavioural science and corporate governance and could be integrated into existing prudential frameworks without major regulatory overhaul.

3. Embed culture into regional climate finance and development programs

Finally, as Australia expands its climate finance and development assistance – including through initiatives such as the Pacific Climate Infrastructure Financing Partnership – cultural awareness must be a central design feature. Projects that assume top-down implementation may fail in high power-distance settings. Similarly, climate adaptation efforts may falter if they neglect local risk perceptions or planning norms.

The Department of Foreign Affairs and Trade, the development sector and partner countries could ensure that cultural resilience indicators are deeply embedded into project design and monitoring frameworks, ensuring climate funding translates into adaptive outcomes on the ground.

Looking ahead: regulation meets realism

Australia’s climate policy landscape is entering a critical new chapter. As mandatory disclosure requirements expand and investor expectations sharpen, the focus must shift from mere compliance to genuine adaptability. It’s no longer enough to ask what firms disclose — we must also ask how they behave under pressure, and why.

Our research shows that culture is a powerful — yet often overlooked — moderator of climate response. National and organisational values around authority, risk and planning deeply influence how companies adapt to growing climate threats. Recognising and embedding these cultural dynamics into governance practices can enhance investment outcomes, strengthen corporate resilience and support long-term economic stability.

For policymakers, this means moving beyond universal rules toward strategies that are responsive to behavioural and cultural realities. For companies, it means investing in governance systems that prioritise flexibility, foresight and local context over rigid compliance.

Climate change will test our systems in complex and uneven ways. A culture-aware approach can help ensure they bend — not break.

Dr Adam Arian is a senior academic at Australian Catholic University and an interdisciplinary researcher working at the intersection of climate risk, governance and corporate behaviour. His research explores how organisational culture influences financial decision-making under environmental stress, with a focus on emerging economies and regulatory adaptation. Adam’s work is published in leading international journals and contributes to evidence-based policy on sustainability, disclosure and resilience.

Dr Ramona Zharfpeykan is a Lecturer in the Department of Accounting and Finance at the University of Auckland Business School. Her research primarily focuses on sustainability reporting and performance, as well as performance measurement, with a particular interest in how organisations communicate their social and environmental impacts.

Dr Richard Busulwa is a Senior Lecturer at Swinburne University of Technology. His sustainability research focuses on issues at the intersection of sustainability management, emerging technologies and behavioural finance. He is co-author of The Digital Transformation of Sustainability Reporting (Routledge, 2025). His work has informed climate policy and received funding from CPA Australia, AFAANZ and the European Commission.

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