Financial Management – Tips for Managing Climate-Related Hazards

To limit rising losses from climate-related disasters, more and more businesses worldwide are weighing shifts in supply chains and production methods. At the same time, regulators and standard-setters have begun to pay more attention to companies’ management and disclosure of climate-related risks.

Worldwide losses from extreme weather and climate-related disasters nearly quadrupled from an annual average of $43.4 billion in the 1980s to an annual average of $165 billion in the past decade, German reinsurer Munich Re estimated. Less than one-third of the losses were covered by insurance.

The risks associated with climate change are prevalent and growing across industries.

“Construction and property development are obviously at risk. Those in agriculture and crops are feeling the changes even now, hence the movement towards urban farming,” said Associate Professor Audrey Chia of National University of Singapore Business School who chairs the university’s environmental management programme.

Addressing these risks, however, promises to bolster sustainability by driving performance and building and protecting a business’s brand.

Energy and supplies

“Whether the company is in food and beverages, cosmetics and personal care, or any kind of manufacturing — it may be good to look for substitutes or alternatives to materials,” Chia said. The UN estimates 80% of global trade is linked to supply chains, and it is a key area of exposure for companies everywhere.

Think of semiconductor chips in your smartphone, tablet, or wearable fitness device. When consulting firm McKinsey researched chip supply chains globally, it concluded they are “highly geographically concentrated in regions with an increasing probability of relevant climate hazards”.

Whether they produce medicine, semiconductor chips, or crops, companies understand these risks on some level, with the 2021 World Economic Forum’s Global Risks Perception Survey rating four environmental threats among the five most likely this decade. Extreme weather, climate action failure, and human environmental damage were the top three; biodiversity loss ranked fifth.

Still, there is a gap between awareness and preparation.

“During Hurricane Harvey in 2017, 20 of Houston’s 120 hospitals had to close, interrupting care for many area patients,” said Doran Hole, the CFO of Ameresco, a renewable energy and energy efficiency company. Hole suggests investments in combined technologies for heat and power, solar, battery energy storage, and microgrids could help organisations safeguard mission-critical facilities against similar events with less disruption in the future.

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Financial Management
By: Luke O’Neill