Climate Risk is Business Risk: How Leaders Can Prepare for a Changing World

In 2023, the U.S. faced a record 28 weather and climate disasters, each resulting in losses over $1 billion. With 22 such events in 2020 and only 5.7 per year throughout the 1990s, 2023 had the highest number of billion-dollar disasters in US history, highlighting a frightening reality for businesses: the climate crisis is no longer a distant concern, it’s an immediate business risk that could affect everything from financial health to operational resilience.  

Recent climate hazards suggest that climate risk is far more widespread across the US than business leaders may care to believe. According to a report by First Street, Hurricane Debby caused $12.3 billion in damage, with 78% of the affected properties and $9.7 billion in losses occurring outside of FEMA’s designated flood zones. This underscores that climate risks are no longer confined to designated danger zones, making it crucial for business leaders to recognize and prepare for potential threats regardless of their location. 

Climate change is affecting every sector, but which risks should be top of mind for business leaders? And how can they strategically prepare for a more sustainable future? 

Here are four ways business leaders should expect their businesses to be impacted and what they can do to prepare. 

Supply chain  

Climate hazards have significant potential to  disrupt supply chains, affecting not only a business’ own operations and facilities but those of their upstream suppliers and downstream customers. Extreme weather events can lead to logistical shipping issues, sudden inventory losses, and operational delays. Given the complex and interconnected nature of supply chains, even minor disruptions can snowball into major delays and inflated costs for consumers. In July 2024, Hurricane Beryl caused ongoing delays to both inbound and outbound shipments, with FedEx listing 285 affected zip codes. To mitigate these risks, it’s crucial for business leaders to assess climate-driven hazards comprehensively, meaning for their own business operations as well as those of critical suppliers and customers. By doing so, supply chain managers can make strategic decisions, such as selecting suppliers with lower climate risk exposure and implementing robust contingency plans to ensure the continuity and resilience of business operations. 

Business continuity  

In addition to disrupting supply chains, climate-driven hazards are posing profound challenges to business continuity across all organizational functions. From business travel to employee safety, climate hazards can prevent businesses from operating normally, sometimes halting operations for extended periods of time. For example, Abbott Nutrition, a baby formula manufacturer based in Michigan, was forced to suspend operations for weeks due to flooding caused by severe thunderstorms. To maintain critical operations and minimize downtime during disasters, business leaders must locate critical business assets to avoid climate hazards. Failing that, they must ensure that adequate strategies are in place to harden assets and plan for potential disruptions where alternatives are not possible. 

Employee well-being 

Climate-driven hazards are likely to do more than dampen employee morale. Extreme weather events like floods, fires, and heatwaves can disrupt employees’ ability to commute, force them to take time off to address housing issues, or even impact their own safety and well-being.  According to a report from the Atlantic Council, annual worker productivity losses averaged $44 billion across the 12 cities analyzed in the study. Beyond these practical challenges, climate change also poses a serious mental health risk, with the American Psychological Association linking weather-related disasters to increased rates of depression, anxiety, and post-traumatic stress. Addressing these concerns is pivotal for maintaining a resilient and productive workforce. 

Insurance premiums 

Climate change can also upend what businesses are paying for insurance, as the increasing frequency and severity of extreme weather events like floods and fires lead to higher financial risks through elevated payouts and claims. U.S. home insurers alone experienced a $15.2 billion net underwriting loss last year, more than double the losses from 2022.  In response to these mounting losses, insurers are adjusting their pricing and investment strategies to better manage their exposure, with some insurers leaving fire- and flood-prone areas altogether. Consequently, premiums for coverage against such extreme weather events are expected to rise, potentially increasing insurance costs for businesses. This shift could have a substantial impact on a firm’s bottom line, making it crucial for business leaders to understand and prepare for the financial implications of climate-driven hazards. 

What can your business be doing to get ahead? 

Climate risk translates to business risk—that much is certain. However, identifying how to work toward climate resilience can also prove turbulent.  

To guide business leaders in ensuring climate resilience, Telesto Strategy utilizes Faros, a physical climate risk management service. Faros helps businesses identify emerging climate threats and position assets to protect business continuity.  

If you’re interested in learning more about your business’s climate risk and creating roadmaps toward climate resilience, start the conversation today at info@telestostrategy.com.