Could Climate Change Impact Your Business’ Finances?

Posted by Sarah Lerche

Most business leaders have an understanding of what climate change could mean for our environment, but not everyone realizes how the climate shift could affect their company's finances. And unfortunately, one recent survey found that 80 percent of CEOs and CFOs say their companies aren’t completely prepared for the adverse impact that climate change will have on their bottom lines.

That’s the word from a new report from insurance provider FM Global, which analyzed survey results from 150 CEOs and 151 CFOs at companies with over $1 billion in revenue to create the 2020 CEO/CFO Climate Risk Survey.

Financial Risks Could Be High

Stakeholders who aren’t sure exactly how climate change might impact them should take note of this startling figure: Last year, it was estimated that over 200 of the world’s 500 largest companies face about $1 trillion in costs related to climate change in the future decades if they don’t take steps to prepare.

Among the impact generators are the physical risks associated with more severe (and more frequent) weather events, as well as and policy and technological changes required to achieve a greener economy. As business leaders work to mitigate these risks, they also face questions about how to make change happen, and who should be responsible for taking charge.

Most Leaders Acknowledge an Issue

While 76 percent of the CEOs and CFOs surveyed acknowledge that their companies are exposed to climate risk, they haven’t prioritized addressing it, the study noted. Most classify addressing climate risk as a “medium priority,” while nearly 15 percent say it is either not a priority at all or it’s ranked quite low.

When ranking the biggest climate risks that concern business leaders, flooding is cited at the top, followed by drought and wildfires, the report noted.

Their lack of action in addressing these factors, however, may be due to the fact that most CEOs and CFOs feel powerless to mitigate the adverse impact of climate risk on their businesses. While 62 percent of survey respondents said they feel they have “somewhat” control over the risks, 20 percent said they believed they have no control or very little.

Here’s Who’s Managing the Risks

When asked who should be accountable to handling the potential financial risks of climate change, most respondents said the buck stops with board of directors and executive management. In addition, however, 74 percent of survey respondents said their companies have employees with explicit responsibility for addressing climate risk.

“The combination of being underprepared for natural catastrophes, volatility in financial markets, and the threat of an economic recession couldn’t come at a worse time for many companies,” said FM Global’s Katherine Klosowski in a statement about the findings.

“Fortunately, most losses stemming from climate-related events are preventable, and loss prevention can help preserve a company’s value and resilience, especially during the pandemic,” she said. “However, the challenge many companies will face is adequately preparing for such events if stay-at-home orders remain in place, which could exacerbate the impact climate-related events have on an already fragile bottom line.”

 

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