Climate change: What are the negative effects on businesses?

Here are some things you need to know to help prepare for and mitigate the impact of climate change on your organization. 

Natural disasters and climate change

The trend toward higher temperatures has caused an increase in the severity of natural catastrophes, with weather events such as hurricanes, windstorms, and floods becoming more and more destructive. Indeed, the United States saw an unprecedented 22 weather and climate disasters that caused at least a billion dollars worth of damage in 2020 alone. Hailstorms too are on the rise – both in terms of storm frequency and the size of hailstones – increasing the risk of extensive damage to vehicle fleets and buildings.²

Climate change is also contributing to more unpredictable weather patterns. For example, Texas experienced record snowfalls in 2021, resulting in more than 100 deaths, 4 – 5 million people left without power, and an estimated $295 billion in losses.³ Not all weather events are necessarily caused by climate change, but patterns in weather events are indicative of climate trends. 

Economic impact of climate change on business

Businesses are facing a transition period where the risks and economic outcomes of climate change are in flux,⁴ but some of the biggest threats are in the areas of:
 

• Operations – Every industry faces different perils from climate change, but all can affect the bottom line. In manufacturing, for example, extreme weather events can cause costly delivery delays and damage to facilities and equipment that can warrant full operational shutdowns. In key agricultural areas, higher temperatures combined with dropping precipitation and soil moisture levels increase the number of wildfire-prone days by 20 to 50%.⁵ This affects not only property and farm productivity but also crops and food supply. Even leisure activity industries are affected by climate change — for example, many ski resorts are being hobbled financially by warmer weather and lower snow amounts.
  
• Resourcing – When your business relies on physical or natural resources, impacts from climate change can be a risk, particularly to your supply chain. Weather-related shipping issues, lack of parts availability due to supplier manufacturing disruptions, water scarcity because of drought conditions and power outages brought about by storms can hamper production and compromise product quality. In addition, there are human resourcing challenges — for example, staff shortages due to disaster displacement — that can also deal a blow to productivity.
  
• Liability – In addition to the commercial liabilities associated with business disruptions, there are legal and corporate reporting implications to your internal environmental practices. For example, energy and utility companies that deal in fossil fuels have been targeted with lawsuits to hold them accountable. Rapidly evolving emissions-related laws and other regulations can leave your company open to legal action or local fines (for example, for outdated, non-compliant oil tanks). More than ever, stakeholders — customers, investors, and employees — want environmental sustainability to be an integral part of the brands and companies with which they engage. An environmental incident or even the perception your organization is not environmentally responsible can cause reputational damage –and, increasingly, executives may be held personally liable.