FM Global: Building businesses’ climate change resilience

2021 has arguably been a seminal year for awareness and response to climate change. Aside from the increasing concern that people worldwide are showing on the issue, as a result of experiencing and living the impact of a changing climate – for example suffering from extreme weather such as flooding and wildfires – two events have had a significant impact.

Firstly, the IPCC (Intergovernmental Panel on Climate Change) released a sobering report stating that even with strong and sustained reductions in CO2 emissions, it would take 20–30 years for the planet to stop getting hotter.

Then, in November of this year, the 2021 United Nations Climate Change Conference (COP26) was held in Glasgow, UK, providing impetus for more governments and organisations to take direct action to cut emissions in an effort to limit global warming to 1.5oC above pre-industrial levels.

For risk managers and insurers, these events should not only highlight concerns around the impact of a changing climate, but also be a prompt to consider the solutions that can make a more sustainable and resilient world.

To understand what climate resilience looks like, it’s vital to first appreciate what the impacts of a changing climate might be.

For many organisations around the world, some of the most visible impacts of a changing climate are the ones that they should be most concerned about. Extreme weather, flooding, wildfires, these types of events can all cause significant damage to organisations, both directly in the forms of property damage, but also through supply chain disruption. Concerningly, these types of events are all likely to be affected by a changing climate.

Notably, data and models show that wet areas of the planet are becoming wetter from extreme rainfall and increasing flood risk, while dry areas are becoming drier, increasing drought and wildfire risk. Additionally, while the data on how a changing climate will affect hazards such as windstorms and hurricanes is less certain, some studies do anticipate that a warmer world will result in more severe hurricanes and storms in the future.[1]

So, more impactful and frequent extreme weather risks is what organisations are facing. But what can risk managers and business leaders do to manage these risks and build resilience?

Understandably, protecting property should be a significant consideration for risk managers. With this task, understanding the key elements is vital. For example, where are your buildings located? What’s nearby? What impact will increasing temperatures have? How will you cope with river flooding, increased rainfall, or rising sea levels? All are questions that need answering to inform an appropriate risk mitigation strategy.

Closely connected with this approach is the need to mitigate the climate risk that operations face. This can mean focusing on individual pieces of equipment, or the wider ecosystem that enables operations to run smoothly, such as energy supply and infrastructure.

This is particularly important as these elements are often located outside a facility, and yet are critical to ensuring it can remain operational. The same equally applies when managing supply chain disruption – information and data is vital in helping risk managers understand and respond to potential supply chain disruption.

Using information and data is vital in helping organisations build climate resilience in both the short and long terms. In the short term, physical risk management improvements can build resilience at specific properties or with specific pieces of equipment. These improvements can include measures such as installing flood barriers, reinforcing a building to make it more wind proof, creating fire breaks or installing sprinkler systems.

In the longer-term, careful analysis of extreme weather patterns and climate impacts may result in decisions being made to move key facilities away from particularly at-risk locations or to create greater redundancies in supply chains to build resilience.

While many of these decisions will need to be taken by risk managers and the C-Suite working closely together, there is certainly a role for insurers to play. Primarily, this role should be two-fold; advising on good risk management practice and decision making and secondly, providing accurate and informative data and analysis that can underpin decision making.

At FM Global we have a variety of tools and resources that can support in this role, such as the FM Global Resilience Index or our Natural Hazard Maps. These are only a couple of examples of how we, as well as the wider insurance industry, can support our clients in managing their climate risks.

A changing climate and a warming world now seems inevitable, though the degree to which it changes remains to be seen. However, that doesn’t mean the disruption organisations and businesses face is a certainty. Taking decisions proactively, based on sound data and analysis, is vital, and can make a real difference in helping organisations build resilience for the climate-related risks to come.