Companies are facing increasing pressure to adapt to climate change, but many are still holding back. Extreme weather, changing supply chains, and stricter regulations are pushing businesses to take action. However, a significant hurdle remains: the perception that climate risk is a problem for the future, not the present.
Lars Regner, who leads resilience services at HDI Global, points out that many companies delay taking necessary steps because they believe climate issues will only affect them down the line. “Some companies simply say, ‘this is tomorrow’s issue,’” he explained. Yet, he emphasizes that those who tackle these risks early tend to see better financial and operational outcomes in the long term.
Interestingly, Regner notes that awareness of climate risks is growing. Five to six years ago, only about 10-15% of companies were concerned about these issues. Today, that number has risen to around 40-50%. More companies are now allocating budgets for risk mitigation, which is a positive sign for progress.
Despite this growth, internal and external barriers still hinder companies’ efforts to build resilience. Budget constraints are a major concern, but there are also issues outside their control. For instance, recent budget cuts at the National Oceanic and Atmospheric Administration (NOAA) have affected the availability of reliable forecasting data, making it harder for businesses to anticipate long-term risks. Regner mentioned that this reduction in data access is particularly troubling for firms operating outside the U.S.
The lack of consistent information complicates investments in infrastructure and supply chains, which require long-term projections. Additionally, regulatory policies can vary by location, impacting how businesses prioritize climate change. For example, in Germany, climate change is not a significant focus in policy discussions, but companies are still motivated to protect their interests. Regner believes that once businesses realize the costs of inaction, they are more likely to adapt.
Investor scrutiny is another key factor driving climate resilience. In regions like the Middle East and Europe, regulators now require businesses to assess climate risks before approving investments. This increased pressure from investors compels companies to evaluate their vulnerabilities.
Even smaller family-owned businesses are becoming more aware of climate risks. Regner shared a story about a long-established company in Germany where the owner, preparing to pass the business to his daughters, agreed to conduct climate risk assessments to safeguard the company’s future.
So, what can companies do to enhance their long-term resilience? Regner suggests that understanding their specific risks is crucial. This includes assessing natural disaster exposures, supply chain vulnerabilities, workforce safety, and adaptability. He recommends companies consider several strategies:
- Infrastructure resilience: Redesigning facilities to withstand extreme weather.
- Supply chain mapping: Identifying weak links and building redundancy.
- Workforce safety: Planning for conditions that could disrupt labor availability.
- Reputation management: Avoiding investments in areas where water scarcity could lead to backlash.
Insurers are also responding to this growing demand for climate risk assessments. HDI Global has established a risk consulting unit with around 200 professionals, including 30 risk engineers, to assist clients in understanding their exposures and improving their resilience.
As companies increasingly seek to understand and mitigate their climate risks, the conversation around climate resilience is evolving. The journey may be challenging, but with greater awareness and proactive measures, businesses can protect themselves and thrive in a changing environment.