How is climate change impacting businesses and what can they do to protect themselves?

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When it comes to extreme weather, there has been a long-standing skepticism in the UK over whether it should be an issue of serious consideration for business leaders. While some of our villages or smaller towns occasionally suffer from flash flooding, it is exceptionally rare that high power wind in cities or towns has been destructive enough to have business leaders panicking.

That perception has changed significantly following Storm Eunice, the worst winds the UK has seen in 30 years. It was a rude awakening for many businesses.

A deep dive into recent research suggests climate change is already taking a toll on businesses. More than one in four organisations worldwide are already feeling the effects of climate change. And in the UK, three in five businesses have been negatively impacted by extreme weather in the last three years.

Despite this growing threat, too many businesses have their heads buried in the sand. Only one in eight have fully weighed the risks of extreme weather disruption, while just one in six have devised a plan to adapt to future climate change.

As the world faces more frequent and disruptive natural disasters, businesses must anticipate climate change impact and take measures to protect themselves. As recent events have proven, UK companies must now include themselves in this planning.

 

Climate change and the global supply chain

COVID-19 has led to massive global supply chain disruptions. Climate change can take things up a notch, as extreme weather events like hurricanes, floods, wildfires, and droughts directly affect 70 percent of all economic sectors worldwide.

Take Taiwan, for example. One company manufactures most of the world’s advanced semiconductors. It takes a lot of water to make these chips, which usually wouldn’t be a problem since the country gets more rain than almost anywhere on the planet. However, this year, typhoon season didn’t produce any typhoons and the rainfall was minimal, leading to the nation’s worst drought in 56 years – a disastrous scenario for chip manufacturing.

The global electronics sector relies on these chips for everything from smartphones and PCs to cars and gaming consoles. And, since most manufacturers rely on this one producer for their chips, this shortage has serious repercussions. The auto industry, for instance, is expected to lose $210 billion in revenue in 2021.

It’s situations like this that stress the importance of identifying your concentration risk. Putting too much stock in a single third-party partner can leave you high and dry if it experiences a disruption and can’t fulfill your needs. Automakers Ford and General Motors are addressing this concern by taking steps to develop their own chips.

While businesses need to take stock of their own operational resilience to withstand climate-related events, they must also do the same for the vendors they count on. Only by evaluating their resilience risk can you determine their preparedness in the face of disasters.

 

The impact on facilities and workers

Climate change will also be responsible for increasing the frequency of more abnormal events.

Businesses in certain regions must now plan for climate disasters they’ve never had to consider before. If the UK is to experience more weather like Storm Eunice in the coming years, business continuity and disaster recovery plans must be adapted accordingly.

Furthermore, the uptick in the number of weather events alone will put additional pressure on commuters and offices. If the weather is too hot, too cold, or too wet for companies’ existing infrastructure, they’ll have to factor in the cost to upgrade. Alphabet Inc., Google’s parent company, noted that rising temperatures could make it more expensive to cool its data centres.

If updating current infrastructure proves to be too costly, many organisations may opt for a total embrace of remote or hybrid working. This could force them to reevaluate their current cloud usage and possibly accelerate adoption.

 

Preparing for compounding events

More frequent climate-related issues, unfortunately, are only part of the problem. Businesses still have to contend with multiple disasters at the same time.

We’re still in the middle of a global pandemic, and cyber incidents are on the rise as a result of the move to hybrid working, with ransomware and phishing attacks exploiting businesses at a breakneck pace. Recent research found that more than 85 percent of UK organisations experienced a successful attack in 2020/2021. Most businesses struggle to address one issue at a time. So, what happens when there’s two or three crises happening simultaneously?

Business continuity and disaster recovery programmes must now reflect the threat of a broader range of natural disasters – and their potential effects on essential services and utilities – and the possibility of other disruptions occurring simultaneously. Adapting your strategies to account for compounding disruptions is essential to positioning your business to remain resilient no matter what.

 

Staying one step ahead

Environmental risks have grown over the last decade, and we can expect this trend to continue. As tempting as it might be to think “that’ll never happen to us”, understanding and investing in a business continuity plan, and business interruption insurance can greatly support recovery.

Disasters can happen when least expected. Companies might not be able to prevent the storm, but they can take steps to handle the situation and keep operations up and running with minimal disruption. This is what the most resilient companies do, and it’s why they’ve stayed afloat while others have not.