Every company is at risk from climate change. This risk is relevant to all industries and will affect the financial performances of companies across the board. This is not only in a few industries that might immediately come to mind, such as energy or real estate.
Climate change-induced natural disasters may have a detrimental effect on the daily operations and production cycles of companies in a variety of sectors and industries. Logistics companies’ operations are fully dependent on infrastructure. It is clear that their operations suffer if ports and roads are impaired by rising sea levels or are not accessible because of storms. The 2010 volcanic eruption in Iceland and the 2011 tsunami in Japan highlighted the vulnerabilities in the modern global supply chain of many companies from electronics to the automotive industry that outsource their manufacturing around the world. While Japanese plants remained closed, international companies like Ford Motors, for example, suffered from production disruptions due to insufficient supplies of their Japanese-made parts.
Climate change may impact the financial performances of companies by increasing the cost of doing business, whether it is in the form of increased price for electricity or water treatment, or the costs of infrastructure repair. At first glance, IT companies’ vulnerabilities to climate change risk may not be obvious. Yet, these companies rely on large quantities of water to cool their servers and have a high demand for electricity to run their data centers. As the climate continues to change, both of these are commodities that will be potentially more difficult and more expensive to procure.
To reduce the impact of climate change on financial performance, companies’ risk mitigation strategies should address climate change risk. One way is to incorporate climate adaptation strategies into daily operations and focus on both technological and behavioral changes. By taking a risk management approach, companies can mitigate the numerous risks posed by climate change and continue to venture in the future. Companies that fail to adapt will be eclipsed by their competition.