Catastrophic damage from
Helene
— and that to come from
Milton
and other hurricanes that will likely follow over the course of the season — has
proven what many in the climate community have been saying for decades:
Businesses are not prepared to adapt to the changing climate.
Record-breaking climate disasters continue to upend lives and businesses, with
over 20 extreme weather events in the US
this year to date, resulting in losses greater than $1 billion. Risk modeling
firm Verisk
expects
annual insurer losses due to climate-related disasters — such as destruction of
office and manufacturing facilities — will only continue to rise and could
increase by more than 40 percent. Insurance rates for real estate markets in
Florida and California are becoming unaffordable and may translate to
businesses needing to insure themselves. Businesses need to quickly recalibrate
the value of their assets and their operational
resilience
in the face of climate-related disruptions to survive in this new environment.
Per the World Economic Forum’s Global Risks Report
2024,
the top four risks in the next 10 years will be related to the environment and
climate change. Climate-related disruptions to direct operations and value
chains are expected to occur more and more frequently, impacting business
continuity. Extreme
heat
will lead to health and safety impacts and lowered productivity — especially in
industries where the workforce operates outdoors, such as agriculture and
construction. Wildfires have devastating impacts on businesses and individuals
directly within the line of fire, as well as indirect impacts on industries
including tourism and outdoor recreation. And a McKinsey
analysis
found that the likelihood of hurricanes like Helene that cause significant
enough damage to disrupt semiconductor supply chains may grow two to four times
by 2040.
Regulators are already starting to require that these risks — which are
increasingly material — be disclosed and managed. The EU has put forth the
Corporate Sustainability Reporting
Directive
(CSRD); Canada has issued the Guideline for Climate Risk
Management (B-15) for
federally regulated financial institutions; France has introduced a
law
that will impose jail terms on the directors of companies that fail to comply
with CSRD; and California
passed
both the Climate Corporate Data Accountability
Act
(SB 253) and Climate-Related Financial Risk Act (SB
261),
amended and signed into law at the end of September as Senate Bill
219 — which will require assurance of
Scope 1, 2 and 3 greenhouse gas emissions and disclosure of climate risks.
Companies will need to prepare for these climate-related risks and regulations
in the same way they learned to manage cyber security and data privacy risks
with the advent of the Internet. They also need to have climate-adaptation and
-mitigation strategies in place as part of enterprise risk management and have
climate exposure reflected in their balance sheets.
For corporations, managing climate exposure can take the form of measuring and
reducing emissions, building supply chain resiliency, relocating physical assets
to lower-risk geographies, and rethinking insurance coverage. Most boards,
however, are ill prepared to adequately manage these risks. A 2021 survey by
INSEAD and Heidrick & Struggles, Changing the Climate in the
Boardroom,
found that nearly half of respondents (46 percent) said their Board has
insufficient or no knowledge of climate change’s implications for financial
performance. Companies will need to augment climate risk expertise among their
Board members and revisit their strategy and decision-making in the context of
climate considerations to prepare business for the future.
The 2024 hurricane
season
has been a stark reminder that no one is immune to the effects of climate
change. Companies in its path have felt that acutely in the past few weeks —
Sibelco and The Quartz
Corp, two key players in the mining of
high-purity quartz critical to semiconductor manufacturing, have seen their
operations entirely shut
down
in its wake. This disruption could cause ripple effects throughout the tech
industry, exactly as McKinsey predicted.
Ignoring these warnings is no longer an option; the resilience and
sustainability of business depends on a company’s ability to address and
manage its climate exposure.
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Sailesh Chutani is a Senior Advisor with BCG, and a Farley Fellow and Adjunct Faculty at Northwestern University. Prior to that, he was the CTO of Logitech and an executive at Amazon — identifying and creating new business opportunities in sustainability. His current board and advisory work are focused on decarbonization, sustainable business models, innovation and digital transformation.
Senior Sustainability Manager, ADEC ESG
Deanna Cook is a Senior Sustainability Manager at ADEC ESG, where she provides sustainability and ESG advisory services to clients across diverse sectors — from private firms to the Fortune 100. Her current focus is climate-related regulation and materiality. She holds an MBA from the Kellogg School of Management at Northwestern University.
Published Oct 9, 2024 8am EDT / 5am PDT / 1pm BST / 2pm CEST