Although physical climate risks are daunting, their very specificity gives business leaders a tangible starting place. There is nothing theoretical or academic about a flooded production site or a warehouse destroyed by wildfires. Your starting point, therefore, is to understand the physical locations along your value chain that are susceptible to threats, including offices or other places where your employees would be affected. Where are the potential bottlenecks? Remember: the second-order effects of climate perils are disruptive, too. For example, if a vital facility is safe from flooding, but its surrounding infrastructure and transport links aren’t, then the facility will be closed anyway when the waters rise.
Next, overlay the climate hazards at those locations using science-based climate scenarios to see what problems might arise. Carefully consider the hazard’s relevance to the business—and even parts of the business—to avoid surprises. A global industrial equipment maker learned this lesson when it had to redesign a flagship product and retrofit its installed base. The reason? The product would otherwise malfunction in areas where climate change is making conditions wetter.
As this example suggests, some aspects of the business may require a thorough assessment, including determining the relevance of the climate hazard to the business, the financial implications, and the potential to mitigate the hazard itself. Here, collaboration with governments, cities, or other businesses will be crucial in mitigating both direct and indirect risks to operations.
The management challenges associated with this step are considerable: When should we adapt (as the industrial equipment maker did)? At what point is the risk too high? What are we doing to ensure that our workers—and the communities they live in—aren’t overlooked? These considerations, and others like them, aren’t going to be solved in one go. Managing the complications of physical climate risk is simply going to be part of your job. Good thing there’s still time to get ready—but only if you start now.
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