To build financial resilience, executives are re-evaluating weather risk

• By translating weather risk into potential impacts on financial statements, executives can identify a company’s operational vulnerabilities.
• Scenarios built around individual extreme weather events can further help executives understand the potential for disruption to business activity and financial results.
• CFOs, CROs, and COOs can jointly guide business decisions with a combination of advanced risk modelling, operational insight, and financial analysis.

All companies face threats from severe weather. But in 2026, weather-related problems have taken a staggering toll on business. In the Americas, Asia, and Europe, unprecedented heatwaves halted corporate activity and led to thousands of excess deaths, wildfires and storms destroyed buildings and property, and droughts caused shipping slowdowns and crop failures. According to one estimate, record heat could lower the euro area’s third-quarter GDP growth by 0.2 percentage points. France’s environment minister said that the drought, heat, and wildfires of 2026 could cost the country as much as €15 billion, or 0.5% of GDP. 

Faced with perils such as these, CFOs and other senior executives we know are translating their company’s weather-risk exposures into potential impacts on revenue, margins, cash flows, liquidity, and asset values. Layering weather-related impacts onto specific line items in the company’s financial statements not only illustrates the extent of potential challenges. The exercise can also reveal vulnerabilities that the business owners of those line items might remedy. More insight comes from working through scenarios for how the company would respond to catastrophic weather events. By pinpointing weather-driven financial shocks that would exceed a company’s risk tolerance, managers can make better decisions about response plans and resilience investments—and thereby protect the value of the enterprise.

How severe weather events become financially significant

Severe weather events, no less than geopolitical or macroeconomic shocks, can have far-reaching and long-lasting impacts on a company’s financial performance. Even a single event can affect multiple line items on financial statements, so executives must account for all of these to properly understand the event’s significance. A storm that damages a company’s facilities and inventory, for example, causes an immediate hit to its cash flow and profit and loss. Additional effects on these statements play out as the company and its partners endure business interruptions and work to restore operations. And if the storm is especially destructive, its impact might also show up on the balance sheet.

Cash flow statement

Weather events hurt a company’s cash flows by creating urgent demands for repairs, emergency procurement, temporary operating arrangements, and resilience investments. For organisations with limited headroom, these outflows can lead to liquidity challenges. Receivables can come under pressure if customers are affected or if invoicing is interrupted. Insurance recoveries, too, may be delayed, incomplete, or contested to the point that companies struggle to cover their short-term cash needs.

Profit and loss statement

Besides causing the repair costs noted above, severe weather events can bring down a company’s top line and drive up its expenses. Revenue may suffer as companies experience logistics delays, production downtime, reduced demand, or customer claims—all while expenses for rent, salaries, and equipment leases continue to accrue. Costs can increase, as when companies pay a premium to move goods by road or rail instead of shipping, switch to non-preferred suppliers, and purchase inputs on volatile spot markets. One chemicals company has forecast that storms, floods, and other severe events could drive up its input costs by 3–5% by 2050, and its maintenance costs by a factor of 18.

Balance sheet

Damage to facilities from weather events may trigger impairments of property, plant, and equipment, along with losses or write-downs of inventory. Companies with long-lived assets that anticipate repeated severe events may also need to reassess useful lives, recoverable values, or future investment assumptions. Finance teams might also need provisions and accounting judgments in instances when their companies face remediation obligations, contract exposures, or other future costs following a significant weather event. Managers at an electronics manufacturer found that the persistent threat of tropical storms could result in a 1% impairment to the value of its property, plant, and equipment in Asia-Pacific by 2050.

When executives look at weather risks in terms of how they can affect financial results, they can start to reckon with weather as a quantifiable variable, not just an elusive intangible factor. A large multinational consumer business based in Europe, for example, included weather risk among the nearly 20 factors it considered while evaluating the resilience of its network of production facilities. The expanded analysis revealed worthwhile opportunities to improve operational efficiency, maintain business continuity, and optimise costs. 

Another business, a real estate operator in Asia, assessed the exposure and vulnerability of its properties to several weather hazards. Executives used the findings to prioritise risk-mitigation investments, reduce the likelihood of unexpected losses, and improve the productivity of the company’s locations.

The value of event-based scenarios

To properly gauge the financial impacts of severe weather events, many executives are choosing to supplement traditional risk metrics with metrics derived from more advanced analysis.

The default technique we often see for measuring weather-related financial risk is to estimate the company’s average annual loss (AAL). Average annual loss converts the financial impact of a wide range of possible weather events over a multiyear period into a single probability-weighted annual estimate. The figure provides management with a broad indicator of weather-risk exposure that can be tracked over time.

Useful as they are, average annual losses tell executives little about their company’s exposure to the weather events that matter most financially—that is, events which can cause catastrophic losses. To understand this sort of exposure, executives must also review the individual weather events that are factored into their AAL projections, and home in on specific, plausible weather events that could have significant financial effects.

Close analysis of high-impact events is necessary because companies have unique weather-risk profiles that will shift as climate change increases the likelihood and severity of extreme weather. Some businesses have a relatively flat distribution of weather-related losses, such that in most years they can expect losses close to their average annual loss. Others have a more uneven profile: many years with little or no loss, punctuated by one or two weather events that could substantially affect earnings, liquidity, or asset values. For the latter group, average annual losses and similar measures can obscure extreme exposures that management should be aware of.

Anticipating the impact of weather disasters

Once they determine which high-impact events their company is susceptible to, some executives take things a step further. They build scenarios to envision how specific weather disasters would affect the company and to simulate management’s response, based on existing disaster plans and capabilities. Event-based scenarios help executives by revealing vulnerabilities across the company’s value chain: its operations and assets, its suppliers, the infrastructure and transport systems it depends on, its workforce, its customers, and so on. The scenarios also provide leaders with a fuller picture of the financial shocks their companies could experience.

Consider what executives at a large manufacturer learned from analysing how extreme weather could disrupt the company’s operations. The average annual loss in the near term, they estimated, amounted to less than 1% of 2025 operating income. But when they calculated potential losses from events at the upper tail of the risk distribution, they saw something materially different: losses equal to nearly 10%, enough to dent margins substantially. The analysis helped management understand and plan for the effects that weather disasters could have on the company’s margins, liquidity, and capital planning.

The role of the C-suite

When it comes to managing the financial impact of weather risk, experience suggests that multiple C-suite executives have important roles to play. These leaders and their teams provide the financial, risk, and operational expertise needed to anticipate the consequences of a destructive weather event and to find ways of protecting enterprise value. Although the exact responsibilities of CXOs will vary somewhat from one company to another, we’ve seen that cooperation among the chief risk officer (CRO), the chief operating officer, and the chief financial officer can create the driving force for a business’s weather-risk efforts.

Chief risk officer

The CRO is commonly well-positioned to analyse the company’s exposure to weather risk and identify the projected weather events that might greatly affect the business. This analysis requires bringing together data, weather models, and risk models from internal and external sources—sometimes with help from the chief sustainability officer, whose team might include professionals with the necessary technical expertise. The findings then serve as a basis for the event-based scenario exercises that allow the CRO, the COO, the CFO, and other executives to estimate the financial shocks caused by major weather events. The CRO can organise those exercises and set out how the company’s disaster-response plans and capabilities would allow the business to cope. 

Crucially, CROs can also help set the organisation’s risk thresholds for extreme weather. By establishing the maximum loss that the organisation can accept from a single weather event, its recovery-time objectives, and other tolerances, the CRO enables the CFO, the CEO, and the board to make more informed decisions about whether to retain risk, transfer it through insurance, or mitigate it through capital investment.   

Chief operating officer

The COO can provide the CRO and the CFO with an important real-world perspective on the possible business impact of severe weather events. By reviewing how weatherproof locations and operations are, the COO can validate whether a given storm, heatwave, or other severe episode might disrupt the company’s value chain—and point out less-than-obvious threats. At one company we know, the COO narrowed down which weather events could damage the company’s valuable fleet of vehicles. Although floods can wreck cars and trucks, the COO explained that in the past, the company’s employees had moved vehicles to safety when floods had been forecast. Much more worrisome are hailstorms, for those can come on suddenly and pummel a fleet before anyone can try to prevent damage.

Chief financial officer

The CFO at many firms holds the responsibility of making sure the company maintains the financial resilience to withstand extreme weather events. This begins with helping the CRO build event-based scenarios around the parts of the company’s value chain that are most crucial to financial performance. From the scenario exercises, the CFO translates any expected physical or operational disruptions into impacts on revenue, operating costs, asset values, provisions, and cash needs, absent any risk-mitigation measures. The CFO then determines how those impacts compare with the organisation’s earnings, liquidity, loan-covenant headroom, insurance, and other financial buffers. When exposures are fully understood and financial resilience appears sufficient, the CFO might choose to accept extreme weather risks. A CFO might also transfer risks using insurance or mitigate them with resilience investments that harden assets or add operational flexibility. 

CFOs can also help embed knowledge of weather-risk exposures into decisions across the finance team. Weather-risk knowledge can, for example, inform the financial controller’s accounting judgments around impairments, useful life, provisions, and going concern. For the head of tax, the key questions are whether weather-related losses—such as an asset impairment—create a tax deduction or refund, and whether transfer-pricing arrangements allocate those costs to the entity that controls the risk and owns the affected asset. 

Knowledge of weather risks can be especially helpful when finance teams make decisions about capital projects, multiyear business relationships, M&A transactions, and other matters affecting an organisation’s long-term financial position. When managers with one North American municipality were planning investments in infrastructure, for example, they made a point of accounting for the costs of coping with extreme weather and of improving weather resilience. They plugged estimates of these weather-related costs into their life-cycle models, design standards, and capital prioritisation processes so that they could choose resilience projects and coordinate them with routine efforts to renew or replace infrastructure assets. That approach revealed significant financial upside: resilience improvements, managers estimated, would reduce annual infrastructure costs by an average of 27% for the rest of the century. Managers also used their findings about weather stress to refine projections of assets’ useful lives, which helped them draw up more practical investment plans.

Protecting value

At some companies, real-world experience and forward-looking projections have convinced executives that severe weather can substantially affect business performance. In response, these executives are enhancing the way they assess and prepare for weather risk: quantifying risks in terms of their possible impact on financial statements, identifying weather events with the largest projected financial impacts, and gaming out their consequences in scenario-based exercises. Those leaders find these practices have helped them protect earnings and cash flows, improve capital efficiency, and strengthen resilience—outcomes that turn weather-risk intelligence into a meaningful business advantage.

Acknowledgement

The authors thank Sydney Alteen, Nico Bourdier, Elliott Cappell, Andrew Chan, Bram De Graaff, Antonie Jagga, and Simon Oswald for their contributions to this article.