Physical
This area can be divided into acute physical events like floods, storms or wildfires, and chronic events, such as prolonged water stress, drought, land subsidence, and increased sea levels. Extreme weather events as a result of climate change can cause damage to property itself, the transport infrastructure you may rely on and product availability across your supply chain, not to mention what you pay for things like energy, transport and insurance. The climate crisis may seem far away, but for businesses that source products or ingredients globally, it will feel much closer to home.
According to the Bank of England weather related losses, both insured and uninsured are much higher globally in recent decades, as shown in the chart below.
Closer to home, floods, followed by storms are some of the most expensive risks that UK faces currently. It is estimated that the cost of dealing with extreme flooding may rise to $217.2bn by 2030-2039 without any interventions Opens in a new window.
Transition
Risks associated with transitioning are typically categorised into those around consumer sentiment towards the change, the requirements for new technology to replace old and reputation, where transitioning (or not!) could result in a backlash and a loss of customers. There will be a cost attached for businesses to adapt to the effects of a changing climate as new governments introduce new regulations to meet their commitments. Transitioning to more sustainable practices also means that some companies could be left with stranded assets such as land or property which no longer valuable. Changing attitudes among customers and investors will mean businesses have to signal that their practices are much more sustainable, and making that happen is likely to require significant investment. A move to a net zero economy is not going to be an easy one and businesses need to plan ahead to mitigate cost, reputation and fall out.
Liability
As people and businesses are more affected by the effects of the climate crisis they’re likely to look for a place to put blame. If a business is not equipped to adapt to extreme weather and their customers suffer as a consequence of this, they’re likely to seek some compensation. This isn’t only costly, but could also affect that company’s reputation. Also, if a business does not communicate effectively about climate-related risks to its investors, they may seek legal redress against the businesses' directors.
Is it all bad news?
Not at all. With most challenges of the scale the climate crisis represents, there follows opportunity in being, and being seen to be, part of the solution. The transition to a low carbon economy is driving innovation, encouraging the development of new technology and is creating new business models and revenue opportunities to meet new customer demands. For instance, many businesses and property owners will find that they can access cheaper financing for their sustainability efforts, by making their businesses sustainable, or their real estate assets more energy efficient.
The green industry is blossoming with projections for the use and development of renewable technologies surpassing previous forecasts. In part we have the volatile costs of fossil fuels to thank for this; it’s a stark reminder that we need to be less reliant on them. The International Energy Agency expects solar power capacity to quadruple by 2030, on course to becoming the world's largest source of electricity by 2033 (IEA World Energy Outlook 2024).
