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Outside of the most carbon-intensive industries, too few companies are looking closely enough at the physical risks that a changing climate poses to their companies. And these risks can be eye-opening. Case in point: a conglomerate learned that extreme weather events could cost it several hundred million dollars a year as soon as 2030. Most of the company’s risk exposure is in its supply chain, and out of its direct control.
These lessons came as a result of a scenario-based assessment to determine the company’s vulnerability to various climate risks. Using a framework developed by the Task Force on Climate-Related Financial Disclosures, company leaders identified several dozen risks most relevant to the company’s situation and explored how its prospects might change under different warming scenarios. The analysis was converted into a series of heat maps for the organisation’s key business units (including the chart depicted here). In addition to the potential for revenue declines, the company identified a handful of key supplier sites facing a high potential for flooding—and another set that risked drought.
As part of the management team’s subsequent discussions, the conversation extended beyond managing the risks the company faced to an examination of how the company might turn them into opportunities. Although these conversations are ongoing, one result was a new focus on R&D efforts to develop green products. Leaders also recognised the need to diversify, and the company is now pursuing opportunities in a small—but fast-growing—adjacent market.