Top 10: Climate Risks

Top 10: Climate Risks
As companies build climate resilience into strategy, we take a look at some of the key climate risks including extreme weather, governance & supply chain

Climate risk is affecting businesses worldwide on a daily basis, making it a growing priority for many to incorporate resilience into their operations and strategy.

According to the World Economic Forum, climate change and its effects are projected to cause between US$1.7tn and US$3.1tn in annual damages by 2050, impacting infrastructure, property, agriculture, and human health.

Pier Vittorio Rebba, Global Head of Sustainability Business, Digital Energy Industries at ABB

Pier Vittorio Rebba, Global Head of Sustainability Business, Digital Energy Industries at ABB thinks that, as the world transforms due to climate change, businesses are presented with the opportunity to engage in new efficiencies – as long as they can build resilience and future proof against the risks.

“The planet is heating up and we are seeing population growth, geographical and economic instability, water scarcity and more,” he says. 

“We’re still working out what this environmental transition means and we need to manage it in the most effective way possible. Alongside sustainability initiatives, it is prompting changes in technology and the workforce, and industry leaders need to work out the balance between growth and net zero because both are possible.”

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All of the following list can be devastating to the companies and communities that are impacted.

10. Community Relations and Stakeholder Engagement

How a company interacts with its stakeholders – including local communities, customers, employees, investors, and regulators – can significantly impact its reputation, operational stability, and long-term viability in the face of climate change. Whilst investors are increasingly prioritising ESG criteria, companies that fail to engage stakeholders effectively on climate issues may struggle to attract and retain investment, impacting their financial stability and growth prospects.

9. Transition Risks

As we continue to transition to a more sustainable economy, changes in consumer preferences, shifts in market dynamics, and the adoption of new business models all open up the opportunity for risk. Transition risks are considered climate risks because they encompass the financial, operational, and strategic challenges that arise as economies shift from a reliance on fossil fuels to more sustainable energy sources and practices.

8. Technological Risks

The rise in dominance of AI and other new technologies being used to support sustainability comes hand in hand with the rise in cyberattacks, the broadening of the digital divide and more instances of technological obsolescence. Whilst Mitie reports that only 21% of leaders are using technology to support their journey to net zero, cybercrime is expected to continue to increase.

“We’ve only just scratched the surface when it comes to the positive impact that technology could have on delivering decarbonisation and how we organise data from different sources could make all the difference,” says Catherine Wheatley, Mitie’s Head of Energy Services.

Catherine Wheatley, Mitie’s Head of Energy Services

7. Reputation and Brand Damage

Consumer expectations on sustainability initiatives are continuing to rise. Deloitte’s 2024 Sustainability and Consumer Behaviour report found that a quarter of consumers are prepared to pay more for sustainability. This includes paying more to protect biodiversity or for sustainable products and packaging, or for products or services of suppliers that respect human rights or commit to ethical working practices. If brands are found to be greenwashing, or not considering sustainability in line with consumer expectations, it can have a severe impact on a brand’s reputation and performance.

6. Water Scarcity

Water scarcity directly impacts two key things – employee wellbeing and ecosystem disruption. This, in turn, can have severe consequences for communities, operations and supply chains that are felt around the world. 

“Four billion people — almost two thirds of the world's population — experience severe water scarcity for at least one month each year,” reports UNICEF. 

“Over two billion people live in countries where water supply is inadequate. Half of the world's population could be living in areas facing water scarcity by as early as 2025.”

5. Biodiversity Loss

World Environment Day 2024 put a global focus on land restoration, desertification and drought resilience to promote sustainability and environmental action under the theme Our Land, Our Future. Biodiversity loss impacts not only habitats and ecosystems but also the very foundations of life on earth.

“70% of the oxygen you and I breathe is produced by our oceans, while nearly 40% of the world’s population depends on marine and coastal biodiversity to earn a living,” explains  Josh Hasdell, Senior Manager – Strategy & ESG, KPMG Canada.

“For our oceans to survive and thrive, we need to change how we’re living and it can start by the business community embracing the Blue Economy – not just as a concept but as a practical aspect of our ESG strategies.”

World Environment Day gives a platform to the natural world and ways to preserve it. Credit: Monstera Production

4. Social and labour issues

Extreme weather can lead to health and safety issues for workers and deteriorated working conditions, including inadequate housing, poor sanitation, and limited access to clean water. The economic pressures from climate change can lead to cost-cutting measures that can cause social and labour issues.

As industries implement new technologies for sustainability, there is a need for retraining and support for workers transitioning between sectors – when this need isn’t met, it is often the workers that suffer.

3. Supply chain disruptions

The ever-changing climate is causing issues in the supply chain that is having an impact globally. Severe weather events like flooding, storms and extreme heat are causing disruptions that ripple down the supply chain, impacting everyone from the supplier to consumers.

In response, many companies are incorporating climate risk management into supply chain strategies to build resilience against such events.

2. Regulatory compliance and governance issues

As pressures for businesses to increase sustainability initiatives ramp up, so do compliance requirements. The ever-evolving regulations landscape and governance challenges pose challenges for businesses trying to keep up. 

Whilst greenwashing is an issue for consumer trust, greenhushing is an increasing trend in response to governance pressures.

A report by South Pole revealed that 44% of companies have found external sustainability communications more challenging over the past year. Additionally, 58% are scaling back their communications, and 18% have no plans to publish their targets at all.

Many companies attribute this to an uneven global regulatory framework, particularly those operating in multiple markets.

Despite consumer pressure to emphasise sustainability – and the boost in sales that often accompanies notable sustainability achievements – some companies are opting to proceed cautiously to avoid complications with new or evolving regulations.

1. Climate change and extreme weather events

The impacts of climate change can be seen through extreme weather events including flooding, droughts, heatwaves, wildfires, hurricanes and typhoons, cyclones, rising sea levels and coastal erosion.

The examples of these are everywhere. The European Environment Agency reports that “in the past four decades, extreme weather has been responsible for €500bn (US$538bn) in economic losses, and 85,000 to 145,000 human fatalities. Heatwaves alone have caused tens of thousands of premature deaths in Europe since 2000.”

Destruction caused by climate change in Vermont 2023. Credit: NASA

In 2023, Vermont saw catastrophic summer flooding and damage from other extreme weather that left communities devastated, roads ripped away and houses devastated. The communities still haven’t recovered, and have now turned to fossil fuel companies to pay for the damages in a new ‘polluter-pays’ model.

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