Corporate SoS: Business and Climate Change Impacts

Business risks from climate change impacts are getting more recognition, as risk analysis gets better and impacts of natural disasters show up larger on the business radar.

2013 will be the year in which the business risks of climate change impacts get understood much more clearly. This is a CEO-level issue because it affects corporate strategy and performance.

As a result, I expect widespread incorporation of risk management strategies for climate change into enterprise-level strategic planning, at least among the Global 500 corporations.

First, there is a much higher corporate acceptance today that climate change is causing increasingly frequent and extreme natural disruptions. Every year breaks the record in terms of the economic impacts of such disasters.

In 2011, extreme weather events accounted for 90% of all natural disasters. The total losses from natural disasters were estimated at $380 billion globally, of which only 33% was insured. 2012 is likely to break this record, with just one disaster, Hurricane Sandy, already clocking in at $50 billion in the US alone.

The link between climate change and natural disasters such as more intense and frequent storms, floods and droughts is now getting a lot clearer. The next step is a lot easier as you follow the economic dots to the trail of disruptions throughout the business value chain.

With this accumulating evidence, 2013 will also see a lot more sophisticated analysis of business risks by industry sector. One of the best publicly available analysis currently summarizes the short and long-term physical and economic implications of climate change on business sectors such as agriculture, food and beverage, apparel, electric power, mining, insurance, oil and gas, and tourism.

As economic impacts get better understood, risk mitigation and management becomes imperative. The thrust of these efforts is to increase the resilience of the business, a topic that calls for another blog.

Corporate SoS is our series about Succeeding on Sustainability in the corporate context.