Organizations must adapt to climate risks to ensure long-term stability and success. Climate resilience involves identifying risks, safeguarding critical operations, and preparing for disruptions caused by extreme weather and regulatory changes.

Key Takeaways:

• Why it matters: Climate events disrupt supply chains, damage infrastructure, and erode customer trust. Proactive planning reduces costs, maintains operations, and meets growing investor demands.

• Types of risks: Businesses face physical risks (e.g., hurricanes, heat waves) and transition risks (e.g., emissions regulations, market shifts).

• Assessment steps: Map assets, evaluate vulnerabilities, and analyze climate hazards using frameworks like TCFD and IPCC.

• Actionable strategies: Upgrade infrastructure, diversify supply chains, and implement early warning systems.

• Monitoring progress: Use metrics like recovery times, operational uptime, and supply chain readiness to track and improve resilience efforts.

Start by assessing your organization's unique risks and integrating climate planning into core strategies. This approach ensures not only survival but also a competitive edge in a changing climate landscape.

Climate Resilience in a Complex World: Strategic Risk Management with Amy Barnes of Marsh

Climate Risks and Vulnerabilities Explained

Understanding climate risks involves dissecting the intricate connection between environmental challenges and business operations. Climate risk emerges at the crossroads of hazard, exposure, and vulnerability, providing a lens to assess how environmental changes could disrupt operations and impact financial performance. This framework shifts the focus from general awareness of climate change to precise evaluations of its potential effects on businesses. With this foundation, we can explore the various risks companies face.

Vulnerability isn’t just about physical damage to assets. For instance, a manufacturing facility in Phoenix, Arizona, may face extreme heat, but its vulnerability hinges on factors like backup power availability, employee safety measures, and alternative production options.

Types of Climate Risks

Businesses encounter two main categories of climate risks: physical risks and transition risks. Each presents unique challenges.

• Physical risks stem from climate-related events and conditions. These include acute events such as hurricanes, floods, and wildfires, as well as chronic changes like rising sea levels, shifting rainfall patterns, and increasing temperatures. Acute risks can halt operations suddenly, while chronic risks gradually erode efficiency and escalate costs. For example, a logistics company in Florida must contend with hurricanes during the season and long-term risks from rising sea levels affecting coastal facilities.

• Transition risks arise as economies shift toward low-carbon systems. Regulatory changes may introduce compliance costs or limit certain activities, while market trends could reduce demand for carbon-intensive products. Additionally, new technologies might render existing processes outdated. Financial institutions are increasingly incorporating climate considerations into their lending and investment decisions, potentially altering access to capital. The automotive industry highlights both types of risks: supply chain disruptions from extreme weather represent physical risks, while evolving emissions regulations and the growing demand for electric vehicles illustrate transition risks.

To effectively manage these risks, businesses need to assess vulnerabilities across their operations.

How to Assess Vulnerabilities

Evaluating vulnerabilities starts with understanding how climate hazards intersect with specific business operations, assets, and dependencies. Begin by identifying operational locations and the climate hazards they face. For example, a company with facilities in wildfire-prone California will have different vulnerabilities compared to one operating in hurricane-prone Gulf Coast regions.

Key areas to examine include:

• Critical assets and infrastructure: Older buildings may be more susceptible to extreme weather, while facilities that are difficult to relocate or replace carry higher risks. For instance, a data center in a flood-prone area may have strong physical protections but still face vulnerabilities if backup power systems fail during extended outages.

• Supply chain dependencies: Supply chains often represent a company’s greatest exposure to climate risks. Businesses typically have limited control over suppliers’ climate preparedness, yet rely on them for essential inputs. A notable example is the 2011 flooding in Thailand, which disrupted global electronics supply chains for months, affecting companies worldwide that depended on Thai-manufactured components.

• Workforce readiness: This includes both physical safety and operational capacity. Extreme heat can lower productivity and increase safety risks for outdoor workers, while severe weather events may prevent employees from reaching job sites. Businesses in regions experiencing more frequent extreme weather must account for how these conditions impact staffing.

Scenario planning is a valuable tool for assessing how various climate futures might affect operations. This involves considering not only average changes in temperature or precipitation but also increases in variability and extreme events. For example, a distribution center might handle gradual temperature increases with improved air conditioning but struggle with more frequent heat waves that strain electrical grids and disrupt transportation.

Using Established Assessment Frameworks

Established frameworks like TCFD and IPCC provide structured methods for evaluating climate risks with precision.

• The Task Force on Climate-related Financial Disclosures (TCFD) is one of the most widely used frameworks for climate risk assessment. It categorizes risks into physical and transition types and guides organizations through identifying, evaluating, and disclosing material risks. TCFD emphasizes scenario analysis to explore how different climate futures could influence business strategies and financial outcomes. Its core elements - governance, strategy, risk management, and metrics - offer a comprehensive approach. For vulnerability assessments, the strategy and risk management components are particularly relevant, focusing on how climate factors shape business planning and risk mitigation processes.

• The Intergovernmental Panel on Climate Change (IPCC) provides a scientific foundation for understanding climate risks. It defines risk as the interaction between hazard, exposure, and vulnerability, offering detailed methodologies for assessing each component. This framework is especially helpful for analyzing physical risks, as it leverages extensive climate science to project future hazards.

Many organizations combine TCFD’s business-focused approach with IPCC’s scientific depth to create thorough assessment processes. Additionally, the Federal Emergency Management Agency (FEMA) offers tools tailored to U.S. businesses, including hazard mapping and vulnerability assessment resources.

Industry-specific frameworks also address unique sector challenges. For example, the CDP (formerly Carbon Disclosure Project) provides guidance for industries like agriculture, financial services, and manufacturing, helping organizations understand how climate risks vary across different operational models.

The key to effective implementation lies in adapting these general methodologies to fit specific organizational needs. A technology company might prioritize supply chain risks and energy security, while a real estate firm would focus on physical risks to properties and infrastructure. Using these frameworks as starting points, businesses can customize their assessments to address their unique vulnerabilities and dependencies.

How to Conduct a Climate Vulnerability Assessment

Conducting a climate vulnerability assessment transforms abstract climate risks into actionable strategies tailored to your organization. By systematically examining your operations, assets, and dependencies, you can pinpoint areas most at risk and design resilience measures to address them. This process typically unfolds in three focused steps: defining your scope, mapping your assets, and evaluating vulnerabilities.

Step 1: Set Your Scope and Goals

Start by defining the boundaries and objectives of the assessment.

Clarify your objectives by identifying the specific questions you need to address. Are you focused on maintaining operations during extreme weather events? Do regulatory requirements necessitate climate risk disclosures? Or are investors seeking detailed climate risk insights? Your goals will guide the scope and methodology of the assessment.

Involve key stakeholders early in the process to gather diverse perspectives and ensure buy-in. Operations managers can highlight daily vulnerabilities, procurement teams understand supply chain risks, and finance teams can quantify potential impacts. Facilities managers bring insights into infrastructure, while risk management and sustainability teams contribute expertise in assessment methods and climate science.

Define your geographic and operational scope based on your priorities and available resources. For example, a multinational company might prioritize facilities in high-risk areas, such as coastal zones or regions prone to drought. A smaller, regional company could focus on its most critical operations. Include both direct operations and key suppliers that could disrupt your business if impacted.

Select appropriate time horizons that align with your planning cycles and asset lifespans. This ensures the assessment remains relevant to your strategic and operational decision-making.

Step 2: Map Your Assets and Dependencies

Once your objectives are clear, the next step is to create a detailed inventory of your physical and operational assets. This mapping process helps uncover hidden dependencies and areas of concentrated risk.

Catalog your physical assets by noting their locations, key characteristics (like age and materials), and any potential design weaknesses. Include critical equipment, storage areas, and backup systems. For instance, a food processing company might discover that while its facility is flood-resistant, backup generators located in the basement could fail during flooding, rendering the entire facility inoperable.

Identify supply chain dependencies by documenting suppliers of critical inputs, especially those with limited alternatives. Record their locations, backup plans, and transportation routes. Single-source suppliers in climate-sensitive regions pose heightened risks.

Assess climate hazard exposure for each location using available data. FEMA flood maps, for example, provide insights into current and projected flood risks across the U.S., while the National Weather Service offers historical data on extreme weather patterns. For wildfire risks, state forestry departments and the U.S. Forest Service provide useful maps. Coastal facilities should review sea level rise projections from NOAA, and heat vulnerability assessments should consider factors like humidity, air quality, and urban heat island effects.

Step 3: Evaluate Vulnerabilities and Capacity

With assets and dependencies mapped, the final step is to analyze how climate hazards could impact them and assess your organization's capacity to adapt.

Analyze direct and indirect impacts of identified hazards on your assets and operations. For example, a warehouse might withstand a hurricane structurally but become non-operational due to power outages or transportation disruptions. Evaluate infrastructure vulnerabilities, considering design standards, maintenance, and age. Cooling systems, for instance, may struggle with rising temperatures if they were designed for historical climate conditions.

Examine operational disruptions caused by climate impacts. Extreme heat, for example, can reduce worker productivity and strain equipment. Semiconductor manufacturing facilities, which depend on precise temperature and humidity control, are particularly vulnerable during power outages caused by heat waves. Similarly, supply chain disruptions can amplify risks, as seen during the 2021 Texas winter storm, which halted petrochemical production and affected industries nationwide.

Assess your organization's adaptive capacity - its ability to prepare for, respond to, and recover from climate impacts. This includes financial resources, technical capabilities, institutional knowledge, and social capital. Financial capacity involves both available funds and access to recovery investments, though insurance gaps are increasingly common in high-risk areas. Technical capabilities include backup systems, alternative suppliers, and operational flexibility. Institutional knowledge encompasses emergency response plans, supplier relationships, and past experience managing disruptions.

Consider sector-specific risks that may not be immediately apparent. Technology companies, for instance, may face cooling failures in data centers or supply chain issues for specialized components. Healthcare facilities must ensure power for life-support equipment and preserve temperature-sensitive medications. Agricultural businesses contend with shifting growing seasons, water availability, and pest changes. Financial institutions face indirect risks through their portfolios and direct risks to physical operations, such as real estate lending in flood-prone areas.

Creating Adaptation Strategies and Setting Priorities

Turning assessment insights into actionable plans is the next step in addressing climate risks effectively. This process involves setting clear priorities and aligning them with your organization's goals. The aim is to go beyond identifying risks and create strategies that not only address vulnerabilities but also enhance overall resilience.

How to Prioritize Risks

Prioritizing risks requires a mix of quantitative analysis and strategic judgment. A well-rounded approach evaluates risks across several dimensions rather than relying on a single metric.

One effective method is the risk matrix approach, which maps the likelihood of climate impacts against their potential consequences. This visual tool highlights which risks need immediate attention and which can be managed over time, offering clarity in complex scenarios.

Another key factor is combining exposure and sensitivity to assess impacts. For instance, a coastal facility’s vulnerability depends on both its exposure to sea level rise and mitigating factors like flood defenses.

Adaptive capacity is another critical element. Organizations with robust financial resources, flexible operations, and established protocols can better handle risks compared to less-prepared counterparts. For example, a company with multiple production sites is generally more resilient than one reliant on a single facility.

A practical example of this comprehensive approach is the City of Rochester, New York. During its 2018–2019 Climate Vulnerability Assessment, the city evaluated exposure, sensitivity, and adaptive capacity across vital systems like transportation, utilities, and public health. These insights shaped its 2019 Climate Change Resilience Plan [1].

Lastly, consider regulatory and stakeholder expectations, as these can elevate certain risks. Investors increasingly demand transparency in climate risk management, and regulations are expanding. In 2022, nearly 80% of 1,400 companies surveyed by the Task Force on Climate-related Financial Disclosures (TCFD) disclosed climate risks, though only 9% accounted for specific warming scenarios [4].

Once risks are ranked, the focus can shift to targeted strategies for addressing the most pressing vulnerabilities.

Building Targeted Adaptation Strategies

With priorities in place, the next step is to design strategies that address high-risk areas while bolstering overall resilience. These strategies often combine infrastructure upgrades, operational changes, and emergency preparedness.

• Upgrade infrastructure to tackle multiple risks. For instance, installing backup power systems can mitigate issues during extreme weather and high-demand periods, while elevating equipment can protect against flooding and simplify maintenance. Resilience-focused upgrades typically add just 3% to total investment costs [3].

• Diversify supply chains to reduce dependence on vulnerable regions or single suppliers. This might include sourcing backup suppliers, creating inventory buffers, or reshoring production to minimize exposure. Some companies are also adopting regional distribution networks to limit disruptions.

• Increase operational flexibility through measures like cross-training employees, enabling remote work, and adopting modular processes. For example, manufacturers might invest in equipment that operates effectively across a range of temperatures or adjust scheduling during extreme heat.

• Implement early warning systems to detect climate hazards in advance. Tools like weather monitoring and automated alerts allow organizations to prepare for disruptions. Economic studies show that early warning systems often deliver benefits 4 to 10 times greater than their costs [3].

• Develop rapid recovery protocols that include pre-positioned supplies, recovery partnerships, and clear communication plans. Documenting procedures for damage assessments and prioritizing repairs helps streamline recovery efforts.

Interestingly, over half of adaptation investments also contribute to reducing greenhouse gas emissions, creating dual benefits. For example, solar panels with battery storage not only provide backup power but also lower emissions during regular operations [5].

Connecting Adaptation Plans to Business Strategy

For adaptation efforts to succeed long-term, they must be integrated into your organization's core strategy. Treating resilience as a core business priority ensures dedicated resources, executive buy-in, and sustained progress.

• Incorporate adaptation into capital planning cycles so that resilience measures compete for resources alongside other strategic investments. Consider climate risks when evaluating facility locations, equipment purchases, and technology upgrades.

• Align adaptation goals with broader business objectives to gain internal support. Framing these investments in terms of operational continuity, cost savings, and competitive advantages can help secure buy-in across departments.

• Integrate climate considerations into governance structures by assigning clear responsibilities. Cross-functional committees, including members from operations, finance, and risk management, can ensure adaptation remains a priority through regular updates to leadership.

• Engage stakeholders such as customers, suppliers, and investors in resilience planning. This collaborative process not only identifies shared vulnerabilities but also demonstrates proactive risk management.

• Tie resilience indicators to performance reviews to promote continuous improvement. Metrics like emergency response times and supply chain stability can be linked to broader performance evaluations.

• Coordinate adaptation with sustainability initiatives to maximize shared benefits. Many strategies, such as energy-efficient upgrades, support both risk mitigation and environmental goals, enabling integrated approaches and shared funding.

The most effective adaptation strategies leverage the best available data, involve local expertise, and take a transparent, system-wide view to address vulnerabilities [2]. By embedding these efforts into everyday operations, organizations can ensure resilience becomes a lasting part of their business framework.

Monitoring Progress and Improving Over Time

To build lasting resilience against climate challenges, it's crucial to monitor progress consistently and refine strategies as needed. Without proper tracking systems, even the most well-intentioned plans can falter. Establishing clear metrics, maintaining open communication, and leveraging feedback loops are essential steps in ensuring that climate resilience efforts remain effective and adaptable.

Setting Up Key Performance Indicators

Key performance indicators (KPIs) are critical for measuring both preparedness and performance during climate events. These metrics should combine quantitative data with qualitative insights to provide a full picture of an organization's resilience.

Operational metrics form the foundation of effective monitoring. These include measurements like system uptime during extreme weather, recovery times after disruptions, and the percentage of critical operations maintained during events. For instance, a data center might track uptime during heat waves, while manufacturers could measure how well production continues amid supply chain disruptions.

Financial metrics help quantify the impact of resilience efforts on the bottom line. These might include avoided costs from disruptions, reductions in insurance claims, and returns on investments in adaptation measures. Businesses may also monitor the proportion of revenue at risk and progress in building climate-resilient revenue streams.

Infrastructure and asset metrics assess physical preparedness. These could involve tracking the percentage of facilities protected from specific climate risks, the number of backup systems installed, or the condition of critical infrastructure. For example, energy companies often evaluate how much of their grid can withstand extreme weather conditions.

Supply chain resilience indicators are becoming increasingly vital as climate events disrupt global networks. Organizations can track supplier diversity, the percentage of key suppliers with adaptation plans, and lead times for essential materials. Assessing suppliers' climate risk profiles and identifying alternative sourcing options are also valuable practices.

Preparedness and response metrics gauge an organization's ability to anticipate and react to climate events. Metrics like employee training completion rates for emergency procedures, the frequency of resilience plan updates, and response times during actual events provide insights into readiness and operational efficiency.

These KPIs not only guide internal efforts but also lay the groundwork for transparent governance, which is explored in the next section.

Creating Accountability and Transparency

Once metrics are in place, organizations need strong governance structures to ensure progress remains visible and consistent. Accountability and transparency are essential for maintaining momentum and building trust with stakeholders.

Board-level oversight is increasingly becoming a standard practice for climate resilience. Many organizations have set up dedicated sustainability committees or integrated climate risk management into existing risk oversight groups. These boards regularly review resilience metrics, set goals, and allocate resources to adaptation initiatives.

Executive leadership plays a key role in day-to-day implementation. Roles such as Chief Risk Officer or Chief Sustainability Officer often include responsibilities for climate resilience, and in some cases, executive compensation is tied to achieving resilience targets, creating direct incentives for progress.

Regulatory reporting is also evolving, with many public companies now required to disclose climate risks and adaptation efforts as part of broader frameworks. Guidelines like those from the Task Force on Climate-related Financial Disclosures help organizations structure these reports around governance, strategy, risk management, and relevant metrics.

Stakeholder communication goes beyond regulatory obligations. Regular sustainability reports, investor calls focused on climate issues, and community engagement sessions help build trust and gather valuable feedback. Many organizations also publish annual resilience updates that outline progress and future plans.

Third-party verification adds credibility to reported achievements. Independent audits of climate risk assessments, certifications for resilient infrastructure, and peer reviews of adaptation plans ensure that progress is both reliable and transparent. Participation in industry benchmarking studies can also provide valuable context by comparing performance with peers.

Transparency also means being open about challenges. Acknowledging setbacks or identifying emerging risks fosters greater trust and demonstrates a commitment to continuous improvement.

Using Feedback to Improve Your Approach

Resilience planning is not a one-and-done process; it thrives on continuous learning and adjustment. Each climate event or review offers an opportunity to refine strategies and strengthen preparedness.

After a climate event, organizations should analyze outcomes to identify actionable insights. Reviewing response times, system performance, and team feedback helps pinpoint successes and areas for improvement. Documenting these findings ensures lessons learned are integrated into future plans.

Regular updates to strategies are essential as new data and technologies become available. Advances in climate science, forecasting tools, and analytics can enhance risk assessments and adaptation efforts.

Stakeholder feedback provides valuable external perspectives. Customers, suppliers, and community members can highlight vulnerabilities or share insights about local impacts. Formal channels like surveys or advisory panels can facilitate these exchanges and uncover overlooked risks.

Technological advancements also offer opportunities to improve monitoring capabilities. Tools like satellite data, advanced forecasting models, and analytics can support early warning systems and more accurate risk assessments.

Peer learning is another powerful way to enhance resilience efforts. Participating in industry groups, conferences, and collaborative initiatives allows organizations to share best practices and learn from others' experiences. This exchange of ideas ensures strategies stay relevant as climate risks evolve.

Conclusion: Getting Started with Climate Resilience

Building climate resilience lays the groundwork for organizations to navigate uncertainty and thrive. The strategies outlined here offer a practical guide to turning climate-related challenges into opportunities through careful planning and execution. Here are the key takeaways to help you move forward.

Key Points to Keep in Mind

Understand your unique risk profile. Climate risks vary widely depending on factors like location, industry, and operational dependencies. Start by defining your scope and mapping critical assets. From there, assess both physical risks, such as extreme weather, and transition risks, like regulatory changes. This ensures your strategies target actual vulnerabilities, not just perceived threats.

Involve all the right stakeholders. Climate resilience impacts every aspect of an organization - operations, finance, human resources, and beyond. Effective planning requires input from various departments, external partners, and local communities who can provide insights into specific risks and conditions.

Make resilience part of your core strategy. Adaptation efforts are most effective when integrated into your existing business goals. Whether it’s financial planning, operational improvements, or strategic investments, embedding resilience into your decision-making processes ensures it becomes a natural part of how your organization operates.

Prioritize interventions wisely. Not all risks demand immediate action. Focus your efforts on the most pressing vulnerabilities, considering factors like likelihood, potential impact, and available resources. This approach helps allocate time and budgets effectively.

Set up systems for monitoring and improvement. Climate risks evolve, and so should your adaptation strategies. Establish clear metrics and feedback loops to track progress and adjust plans as new information becomes available.

Steps to Get Started

Ready to take your first steps? Start with a preliminary risk screening using the frameworks discussed here. This initial evaluation doesn’t have to be exhaustive - focus on identifying the most obvious vulnerabilities and quick wins.

• Build on what you already have. Many organizations already have risk management protocols, emergency plans, or sustainability efforts in place. Use these as a springboard for your climate resilience initiatives instead of starting from scratch.

• Start with small, high-priority actions. Select one or two key risks to address first. This focused approach allows you to test strategies, gain experience, and demonstrate results before tackling more complex challenges. Document these efforts to inform future planning.

• Tap into external expertise. Industry groups, government bodies, and research organizations offer valuable resources, data, and tools. Joining peer networks or collaborative initiatives can also provide insights and best practices to accelerate your progress.

• Schedule regular reviews. Climate science and risk landscapes are constantly changing. Plan for periodic updates - annually or bi-annually - to reassess risks, measure progress, and refine your strategies.

The urgency for climate action is growing, but organizations that act now will be better prepared for future challenges while positioning themselves to seize new opportunities. By consistently applying the strategies in this guide, you can build a resilient foundation for long-term success. The key is to take that first step and keep moving forward.

FAQs

How can businesses build climate resilience into their strategies for long-term success?

To effectively incorporate climate resilience into their strategies, businesses should begin by pinpointing climate-related risks and vulnerabilities within their operations and supply chains. Regular assessments are essential to evaluate how both physical and transitional climate risks could affect the business under varying climate scenarios.

Next, crafting specific plans to address these risks is key. This might involve improving operational efficiency, strengthening supply chain stability, and weaving climate considerations into everyday decision-making. Establishing clear objectives, monitoring progress, and fostering leadership involvement ensures that resilience initiatives remain aligned with broader business priorities.

By making climate resilience a fundamental part of their strategies, businesses can better manage climate-related challenges, safeguard their operations, and position themselves to capitalize on growth opportunities in a changing world.

What key steps should organizations follow to assess climate vulnerabilities and build resilience?

To effectively address climate vulnerabilities, organizations should take a structured approach that involves three key steps:

• Pinpoint climate hazards: Start by identifying potential risks tied to environmental changes. These might include extreme weather events, rising temperatures, or shifts in sea levels that could directly affect your operations or disrupt supply chains.

• Assess exposure and vulnerability: Take a closer look at which areas of your business are most at risk. Evaluate their current capacity to handle these challenges and consider their ability to adapt over time.

• Rank risks and plan responses: Organize the identified risks by their severity and likelihood of occurrence. From there, craft specific strategies aimed at reducing these risks and improving your overall resilience.

By following this approach, businesses can develop customized plans to safeguard their operations while staying prepared for the evolving challenges of climate change.

What steps can companies take to identify and prioritize climate risks while selecting the most effective adaptation strategies?

To tackle climate risks effectively, businesses should begin with a thorough evaluation of their vulnerabilities across both operations and supply chains. This means taking a close look at potential threats, such as extreme weather events, temperature changes, or disruptions in supply networks.

After identifying these risks, the next step is to prioritize them. Factors like the severity of the threat, its likelihood, and the potential financial or operational fallout should guide this process. With a clear understanding of priorities, companies can then develop tailored strategies to address these challenges. This might include redesigning infrastructure to withstand extreme weather, diversifying suppliers to reduce dependency, or implementing measures to improve energy efficiency.

The focus should remain on solutions that not only address immediate risks but also align with the organization’s broader objectives, delivering meaningful benefits over the long term.

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