Feb 1, 2022
Addressing Climate Change Will Require Prioritization by CEOs
By Ahmad Wani, CEO & Co-Founder, One Concern
In December, when an Amazon warehouse in Illinois collapsed in the wake of a tornado that devastated much of the Midwest, it showed once again that Fortune 500 companies are not immune to extreme weather events. Immune, perhaps, ten years ago, but not today.
Unfortunately, over the past year, we have suffered from repeated, costly natural disasters, whether it be the failure of Texas’ power grid due to an unprecedented cold wave, Hurricane Ida, the sixth-costliest tropical hurricane on record, or the multiple wildfires out West. Weak public infrastructure — power grids and transportation systems — have been devastated by these events and rendered inoperable, paralyzing the companies reliant upon it, regardless of whether those companies suffer any damage to their assets.
Climate change increases the frequency of natural hazards and extreme weather events that impact thousands of homes, businesses and communities. Three decades ago, 58 weather/climate disaster events occurred in the United States with losses exceeding $1 billion. In the last decade, there were 145 events — a 241% increase in thirty years, with estimated insured property losses exceeding $551 billion.
The data suggests CEOs will likely have to manage one or two material risks in the next ten years due to climate change.
We expect to see further increases in acute disasters throughout the forthcoming decade, such as flash floods, storm surges, wildfires, heat waves, tornadoes, and infrastructure failures. Climate change will also introduce flood risk in areas we never expected before.
Different industries will have to solve different challenges. There won’t be a one-size-fits-all solution. It will vary depending on the region and hazard.
The hotel industry, a natural refuge for displaced victims of natural disasters, may need to address blackouts more regularly due to wildfires, floods and hurricanes. The logistics industry will have to account for business interruptions stemming from a grounded workforce and inoperable critical infrastructure. To maintain financial stability, the banking industry will have to monitor its real estate portfolios in hazard-prone areas closely. Finally, utilities will be asked to absorb heightened heat, cold, and water stress.
According to Moodys, the financial risk of natural disasters carries a total global debt of $7.2 trillion across 18 sectors.
Climate change and extreme weather are likely to bruise Fortune 500 companies and may shatter small businesses, the backbone of America’s economy, due to potential revenue loss. According to CDP, a disclosure non-profit, $1.26 trillion in revenue for 8,000 suppliers of goods and services is susceptible to climate risk.
Now is the time to prioritize how we deal with climate change, not just in boardrooms but on Main Street too. Over the years, adapting to climate change has become a priority, but it isn’t the top priority. The World Economic Forum’s recent Global Risk 2022 report highlights that, globally, respondents rank climate action failure as the most critical threat to the world. However, in the United States, the top threat identified is asset bubble bursts in large economies, followed by climate action failure and extreme weather.
CEOs have not been forced to deal with climate change for years because it hasn’t materialized. But Mother Nature is putting us all under the gun.
The way to address climate-related risk is to make climate resilience part of company governance and risk organization. Chief Risk Officers and Chief Sustainability Officers aren’t empowered to be proactive about climate resilience. They ought to be. Alternatively, CEOs should appoint a Chief Resilience Officer whose sole job is to get ahead of climate impacts.
The reality is that the crisis management team gets established or activated only when a disaster is about to strike. Crisis management teams need to be running during non-emergency times to minimize threats. Finally, companies need to start doing proactive mitigation, not reactive.
Time never waits.
The clock is ticking for CEOs to uncover and understand their exposure to natural disasters and the climate-related risk to their facilities, operations, and dependent infrastructure.
Wani is CEO and Co-Founder of One Concern, a climate resilience technology company.
