The reality is clear: the world is missing the mark on achieving global warming limits, and how businesses are currently approaching climate resilience isn’t enough to avoid the damaging and accelerating effects of climate change. According to Bain & Company, companies are too focused on short-term risks and will need to take a new approach to ensure that climate impact is at the forefront across their value chain while utilizing better data in their decision making in order to avoid the worst impacts of our changing world.
Businesses are now facing more risk than ever, with supply chain disruption, geopolitical instability, and looming danger of new operational risks to critical facilities, whether their own or those of key suppliers. Their customers are facing similar risks as they work to evolve in a world of ever-increasing uncertainty. With typical corporate planning processes such as insurance availability and engineering standards still tuned to “normal” weather patterns that have been adjusted to account for a different future climate, planning will need to shift from accounting for short-term risks to taking a longer view of how the global business environment is changing and will continue to change.
Ready or not, the business impacts of climate change are here now, and they’re growing. Generational droughts in China have shut down critical production facilities for companies like Intel and Apple, water availability concerns halted the construction of a $1.4 billion brewery project by Constellation Brands, and “once in a millennium” weather events like Hurricane Ian have caused $50 to $75 billion in losses to insurers. With the frequency and severity of climate dangers growing by the year, businesses have been underestimating the likelihood of and their exposure to these events.
To better hedge against future risk, Bain is encouraging business leaders to take a different approach to their resilience planning. It is recommending the adoption of best-in-class analytical tools to better model the climate risk for key geographies on a longer timeframe; taking a closer look at how climate can impact all aspects of the value chain, including suppliers, infrastructure, assets, access to resources, employees, customers, and communities; and focusing on practical actions that can be taken now to adapt to and stay ahead of the coming challenges.
As the world speeds toward the consequences of inaction on climate change, investing in climate adaptation and resilience becomes more crucial for businesses around the world regardless of their industry — paying the cost to adapt and plan ahead now will be critical for businesses that wish to survive and thrive in our changing world.