When mitigating climate risks, companies should look at their most valuable asset

The year 2023 was the hottest on record, a stark reality reinforcing climate change’s impact on global communities.

Between 2011 and 2020, average global surface temperatures have been 1.1 degrees Celsius higher, on average, than during the years 1850-1900. Our world is getting warmer; the Intergovernmental Panel on Climate Change’s 2023 synthesis report concluded that climate change is already driving weather and climate extremes across every region of the world and that losses from climate change escalate with every incremental increase in global temperatures.

That trend is already playing out prominently. Over the past 50 years, the incidence of natural disasters has risen sharply; 239 natural disasters were recorded globally in the first nine months of 2023, a 214% rise from the 76 disasters recorded in 1970.

In the United States, an average of 8.1 events in which overall damages reached or exceeded $1 billion (adjusted according to the consumer price index) were recorded annually between 1980-2022. In the five years from 2018-2022, this figure increased to an average of 18 billion-dollar disasters annually (consumer price index-adjusted). In 2023, 25 events resulting in losses of over $1 billion had been recorded by November.

While these statistics indicate the rate and associated costs of increased drought, flooding, earthquakes, extreme temperatures, wildfires and other natural disasters, they do not tell of the lived experience and devastating effects on communities or the uneven distribution of such effects.

The escalation of climate risk and impacts has major implications for prosperity, economic security and societal wellbeing, in no small part due to the disproportionate effects on the poorest and most marginalized.

For example, 2.2 billion people are exposed to flood risk – a quarter of the global population – and 89% live in low- and middle-income countries.

At the other end of the spectrum, extreme heat and drought are among the deadliest weather-related hazards, causing far-reaching impacts on the natural environment and populations. While greenhouse gas-driven heat risks are being felt globally, economies and communities in the Global South are bearing even more severe impacts.

The imbalance between greater emissions produced by the Global North and the graver burden of extreme heat suffered by the Global South raises questions about climate justice and equity. It also presents major operational, risk management and response challenges to global businesses.

When assessing climate risks today, management teams must think beyond the economic costs of damage to physical assets, premises or infrastructure and consider the more holistic dangers of climate change.

Companies powered by human capital – field to table, factory to home etc. – must assess their people’s physical, transition and adaptation risks and the knock-on impacts on supply chains, operating models and productivity across their operations.

Climate risks to people will materialize in vastly different ways according to the market or locale they operate in, their role and their individual context. When employees and their families are exposed – whether to extreme weather events or broader economic shifts through climate adaptation, including re-shoring of supply chains or exiting certain markets – businesses can also be exposed.

Assessing climate risk to people is neither top-down nor bottom-up; this undertaking is premised on modelling a complex matrix of consequences – from absenteeism and business interruption to evolving benefits and family coverage.

Businesses that don’t address the impacts of climate change on their people risk sinking into a sea of missed opportunities.

The potential for climate impacts to present profound risks to the home environment, health and safety of people and their families is a consideration that future-facing organizations shouldn’t underestimate.

Some organizations are looking ahead and assessing emergent threats that may impact their people’s future safety and wellbeing through global warming, including the rise of vector-borne diseases like malaria, dengue fever and the Zika virus, which have a climate dimension.

The Wellcome Trust estimates that an additional 4.7 billion people may be at risk of the vector-borne diseases malaria and dengue by 2070 as global warming extends both the geographic spread of vectors and the season for disease transmission.

The impact of extreme heat on people must also be factored into broader considerations of workforce wellbeing and health and safety. Lack of access to cooling or shelter from extreme heat presents immediate health impacts and could increase the incidence of workplace accidents by impeding the ability to rest and recover.

Recognizing the degree to which social factors present material risks to operations and the ability to attract investor capital, many businesses have taken great strides in bringing social risk factors to boardroom agendas.

Through climate transition, social and human risks to businesses are evolving. Leaders can proactively assess, account for and build a strategic response to mitigate the impacts on their people and bottom line. Building a risk and response framework is beyond any altruistic endeavour; it is rooted in recognizing climate change’s scale and systemic effects on people and businesses globally.

As we navigate the uncharted territory of climate change, we must recognize its profound implications as a social risk.

The impacts of rising temperatures, extreme weather events and environmental degradation are not confined to the natural world alone; they resonate through our societies, affecting the most vulnerable among us. From displacement and migration to food and water scarcity, climate change exacerbates existing social inequalities and threatens to widen the gap between the haves and have-nots.

To build a just and resilient future, we must confront climate change as a social risk head-on, prioritizing equitable solutions, empowering marginalized communities and fostering collective action. Only by addressing the social dimensions of climate change can we forge a path towards a sustainable and inclusive world for all.