Copyright © 2025 Telesto Strategy, LLC
All rights reserved
With the reorientation of manufacturing to the U.S. in response to President Trump’s trade policy, multinationals focus on potential site evaluation and selection. Be it Hyundai in Indiana, Apple in Texas, or Toyota in North Carolina, global companies have made public commitments to bring back parts of their complex supply chains to the U.S. While a myriad of factors must be considered – talent pools, state incentives, land availability, access to first-tier supplies—an underrated question is that of physical climate risks. As manufacturing returns, corporate boards will have to ask their teams what climate-driven risks—water shortages, extreme heat, or flooding—will these new sites face? Where will climate-related hazards pose the greatest threat to business continuity and long-term profitability? Is it enough to reconsider our site location?
Key takeaways:
- With the pressure of multi-national industrial and CPG companies to relocate more of their supply chains to the U.S., roughly 20 companies have made multi-billion dollar commitments to reshoring
- When considering domestic site selection, physical climate risks have been under-considered and pose threats to business continuity and long-term financial returns
- Only 1 in 5 companies has a climate adaptation plan in place to address physical climate risks, which exposes them to acute and chronic financial risks
- As board directors oversee the onshoring of manufacturing, assembly, logistics, or other considerations, physical climate risks should be integrated into the process and enterprise risk management strategy
Which early commitments have the most to lose?
As companies reacted to President Trump’s trade policy, a host of multinationals came forward with commitments to reshore operations and production facilities to the U.S. In addition to tariff policies, these decisions are typically influenced by various factors – economic incentives, workforce availability, proximity to first and second-tier suppliers, and their customers. With strong state-level investments and incentives in states like Texas, Arizona, and Nevada, many companies have decided to identify sites in these states – Eli Lilly, Samsung, Apple, Tesla, Nvidia, and others. However, what’s not taken into account is the severe physical risk that these zones face.
Only 1 in 5 companies has an adaptation plan in place to address physical climate risks. On average, droughts, extreme heat, and flooding and water stress, are projected to be the main climate hazards for about 50% of companies in 2030, absent adaptation.
What are Physical Climate risks and why do they matter?
Physical climate risks refer to the direct impacts of climate change on a company’s assets, operations, supply chains, employees, and customers due to extreme weather events or long-term climate shifts. These risks typically fall into two categories – (i) acute risks, which are sudden extreme events like hurricanes, floods, fires, extreme storms, heatwaves, or (ii) chronic risks, which include long-term changes like sea-level rise, desertification and drought, rising average temperatures.
Physical risks pose a host of challenges for multinational companies;
- First, they damage and destroy infrastructure, production facilities, and cause operational shutdowns
- They increase the insurance costs and have led to a dramatic reduction of coverage across the U.S. With coverage in Florida, Texas, and California more challenging, self-insurance and captive insurance have become more common, but expose companies to retained losses
- Supply chains in climate-vulnerable regions (e.g., Gulf Coast, Central America, South Asia) face asset damage, power outages, or transportation halts.
- In the dry states of Arizona, Nevada, and Texas, water scarcity will be further constrained by water-intensive production and data center management
- Regarding cost of capital, credit agencies and investors now integrate physical risk into credit scores and investment decisions. For example, Moody’s downgraded municipal and corporate bonds in Florida and Louisiana due to hurricane exposure and sea-level rise
To support boards in their assessment of physical risk, we have taken the top 20 commitments made by manufacturing companies and have evaluated their physical climate risks. With this in mind, leaders can evaluate the risks these locations pose.
As companies evaluate locations in the U.S. to onshore operations, a number of physical-related risks will need to be considered to safeguard investment in the long-term. The below map provides additional context to the risk rating for their new U.S. operational investment at a state- and site-level.
Actions boards can take:
- Re-evaluate asset portfolio for climate risks using TCFD framework across the following pillars: governance, strategy, risk management, metrics and targets
- Evaluate the company’s enterprise-wide adaptation plan to address physical risks and if not in place push for rapid completion
- Mandate climate risk integration into site selection
- Approve capital for climate-resilient infrastructure design, which may require capex premiums for flood-resilient construction, storm-resistant roofing, firebreaks, and cooling systems in climate-sensitive regions
- Establish a physical climate risk oversight committee and convene quarterly
- Direct management teams to stress-test supply chain and logistics routes for disruptions due to climate events
- Monitor property insurance accessibility and premium volatility
- Leverage federal resilience incentives for onshoring
- Evaluate utility resilience and grid risk in site approvals
- Integrate climate risk into board fiduciary duty frameworks – align with SEC climate risk disclosure rules, ISSB guidance, and rising litigation risks tied to inadequate planning
Questions for the boardroom:
- Which of our physical assets are currently located in high-risk zones and how have these risk assessments changed over the past 12-24 months? For those assets that are planned to relocate, how have we evaluated their new sites?
- Which of our competitors have had to impair assets or revise depreciation schedules due to physical climate risks?
- What climate resilience factors are we incorporating into site selection for new facilities in the U.S.? What are we requiring of our first and second-tier suppliers?
- How are our suppliers assessing their own physical climate risks and adaptation plans?
- Do we have geographic diversification strategies in place to mitigate localized climate events that may cause regional disruptions?
- Have we stress-tested our operations and financials for multi-hazard phydical events (e.g., category 4+ hurricane plus utility failure)?
- What exposure would the new locations have to the growing trends of insurance premium increases or lack of coverage due to physical climate risks?
- How have we adjusted depreciation schedules or impairments assumptions to reflect climate risk?
- What are our disclosures under TCFD or ISSB standards, and do they include quantified estimates of physical climate risks to revenues or margins?
Additional Telesto resources:
- Board Series: Know Your Supplier – Diversification risks amidst escalating trade wars
- Board series: The CEO confidence gap – How can boards step up in a context of global uncertainty?
- Atlas, equips your organization’s corporate directors and leaders with the insights and knowledge necessary to stay up to date, mitigate risks, and seize business opportunities associated with sustainability, climate, and ESG
- Faros, helps your organization identify emerging climate threats as they become more common and disruptive and position your assets to protect business continuity and hedge against rising insurance costs
- Recently released by Telesto Strategy’s CEO & Founder, Alex Kruzel, The Courage to Continue: Stay the Course on Sustainability to Secure our Future, explores the connection between corporate priorities and President Trump’s national security agenda
