The threat of climate change is an urgent reality that businesses across industries and regions are increasingly grappling with. As global temperatures rise, extreme weather events — including wildfires, storms, heatwaves, floods and droughts — are growing in both frequency and intensity. These events affect employee health, property and supply chains, underscoring the importance of understanding climate change's effect on not only the environment but also the operational viability of businesses.
Extreme weather can spoil perishable goods, damage packaging and weaken critical infrastructure like asphalt, which limits transportation. Water shortages disrupt global supply chains in agriculture, manufacturing and energy. For instance, Emirates Airlines suffered a $110 million loss due to severe rainfall in April 2024, while floods in Malaysia disrupted semiconductor supplies. These incidents serve as stark reminders of the pressing need for businesses to adopt strategies that mitigate climate-related risks and enhance their resilience in the face of such challenges.
See also: Climate and Catastrophe Risk Strategies
Adapting to Climate Challenges
As climate challenges intensify, businesses, local communities and governments must adapt swiftly. The Marsh McLennan Flood Risk Index reveals that nearly a quarter of the world's airport capacity and a third of global trade are at risk from flooding, with these risks expected to double if temperatures rise by 2 degrees Celsius. Adapting to climate change is essential for effective risk management;;according to a Marsh survey, half of corporate respondents reported experiencing extreme weather events in the last three years. Recognizing this urgency, companies already have the tools to respond to these unpredictable events, from risk management frameworks to business continuity plans.
While 83% of companies are aware of climate-related physical risks, only 48% assess them quantitatively, often overlooking connected, system-wide factors such as suppliers, regulators and ecosystem services. However, it is encouraging that 90% have begun climate adaptation discussions, focusing on business continuity planning, asset engineering and adapting work patterns to manage climate risks. This growing awareness indicates a shift toward recognizing the importance of embedding climate resilience into corporate strategies.
Building Comprehensive Adaptation Strategies
Effective adaptation requires a comprehensive approach that includes assessing supply chain vulnerabilities. Businesses must look beyond core operations and consider the dependencies of their suppliers and partners to understand how climate risks might disrupt supply chains. Increasingly, companies are aware that aligning resilience planning with these external factors is critical; however, true risk mitigation requires a collaborative, cross-organizational approach. By fostering partnerships across their supply chains and engaging with stakeholders on resilience efforts, businesses can create more robust strategies for managing climate-related risks.
Although many companies acknowledge the value of climate adaptation, only 43% currently apply cost-benefit analysis when planning for it, and few integrate resilience considerations into insurance strategies. Products like parametric insurance provide options for companies to mitigate financial losses from extreme weather. Corporate risk managers also play a vital role in embedding resilience through infrastructure and technology investments that can withstand climate disruptions.
See also: Parametric Insurance Can Tackle Climate Risks
Engaging Stakeholders for Long-term Resilience
Adaptation strategies must encompass factors like government regulations, ecosystem dependencies and community well-being. Viewing adaptation as an investment rather than a cost positions businesses for greater resilience over the long term. Collaborative efforts across stakeholders — including governments, capital providers and local communities — are critical to building a climate-resilient framework. This collaborative approach not only enhances individual business resilience but also contributes to broader community stability in the face of climate challenges.
To ensure adaptation strategies remain effective, businesses must set measurable resilience goals and continually review and refine them as climate risks evolve. Here, corporate risk managers can apply the "3 As" — Ambition, Analysis and Action — as guiding principles:
- Ambition: Establish clear resilience goals and define the level of climate preparedness required.
- Analysis: Assess risks across assets, operations and stakeholders to identify the most important adaptation strategies.
- Action: Prioritize adaptation measures, build a strong business case for funding and guide implementation.
Concentrating on the "3 As" framework empowers businesses to avoid disruptions, recover quickly from losses and adapt to continuing changes in climate risk.
Closing Points
Through a holistic strategy that protects operations, assets and supply chains, businesses can ensure that they not only survive but thrive in the face of intensifying climate challenges. Now is the time for businesses to act by embedding resilience into their strategies and securing a sustainable future for themselves and their communities.
