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Risk Management

Climate change: What are the negative effects on businesses?

blue agave covered in snow

Carbon dioxide (CO2) emissions from the burning of fossil fuels (such as coal, oil, gasoline, and natural gas) have created a warming “greenhouse effect” around the planet. The impacts of this global warming are far-reaching, harming people, property, and businesses worldwide. No matter what industry or region you’re in, it is almost impossible to escape the effects of climate change – and damages in some areas are projected to be in the hundreds of billions of dollars annually through the end of the 21st Century.1 It’s critical, therefore, to address the immediate pressures that climate-related issues put on your company’s bottom line. 
 

Here are some things you need to know to help prepare for and mitigate the impact of climate change on your organization. 

 

Natural disasters and climate change

The trend toward higher temperatures has caused an increase in the severity of natural catastrophes, with weather events such as hurricanes, windstorms, and floods becoming more and more destructive. Indeed, the United States saw an unprecedented 22 weather and climate disasters that caused at least a billion dollars worth of damage in 2020 alone. Hailstorms too are on the rise – both in terms of storm frequency and the size of hailstones – increasing the risk of extensive damage to vehicle fleets and buildings.2

Climate change is also contributing to more unpredictable weather patterns. For example, Texas experienced record snowfalls in 2021, resulting in more than 100 deaths, 4 – 5 million people left without power, and an estimated $295 billion in losses.3 Not all weather events are necessarily caused by climate change, but patterns in weather events are indicative of climate trends. 

Economic impact of climate change on business

Businesses are facing a transition period where the risks and economic outcomes of climate change are in flux,4 but some of the biggest threats are in the areas of:
 

  • Operations – Every industry faces different perils from climate change, but all can affect the bottom line. In manufacturing, for example, extreme weather events can cause costly delivery delays and damage to facilities and equipment that can warrant full operational shutdowns. In key agricultural areas, higher temperatures combined with dropping precipitation and soil moisture levels increase the number of wildfire-prone days by 20 to 50%.5 This affects not only property and farm productivity but also crops and food supply. Even leisure activity industries are affected by climate change — for example, many ski resorts are being hobbled financially by warmer weather and lower snow amounts.
  • Resourcing – When your business relies on physical or natural resources, impacts from climate change can be a risk, particularly to your supply chain. Weather-related shipping issues, lack of parts availability due to supplier manufacturing disruptions, water scarcity because of drought conditions and power outages brought about by storms can hamper production and compromise product quality. In addition, there are human resourcing challenges — for example, staff shortages due to disaster displacement — that can also deal a blow to productivity.
  • Liability – In addition to the commercial liabilities associated with business disruptions, there are legal and corporate reporting implications to your internal environmental practices. For example, energy and utility companies that deal in fossil fuels have been targeted with lawsuits to hold them accountable. Rapidly evolving emissions-related laws and other regulations can leave your company open to legal action or local fines (for example, for outdated, non-compliant oil tanks). More than ever, stakeholders — customers, investors, and employees — want environmental sustainability to be an integral part of the brands and companies with which they engage. An environmental incident or even the perception your organization is not environmentally responsible can cause reputational damage –and, increasingly, executives may be held personally liable.
     

Strategies to mitigate the effects of climate change on your business

Consultants and organizations like the United Nation’s Intergovernmental Panel on Climate Change (IPCC) have acknowledged that though there’s no way to predict every peril, you can prepare for and reduce potential adverse effects.

Protect your business from extreme weather
Before natural disasters happen, understand how they might impact your business and follow best practices to mitigate damage. Learn how you can bolster your facilities and tailor emergency preparedness plans for specific natural catastrophes here:
 


To reduce the risk of water damage consider IoT early warning technologies such as moisture detection systems.

Assess exposures and review your business continuity plan
From weather patterns in your geographic location to hazards unique to your industry, risk engineering services can help you gauge where your business is exposed to climate change-related perils. Having a business continuity plan tailored to your company’s specific exposures will help ensure that a climate catastrophe doesn’t mean irreparable damage to your profits — or the end of your business.

Create resiliency in your supply chain
Disasters related to climate change don’t only affect your facilities, they can also impact the suppliers your business relies on. Guard against supply chain vulnerabilities by assessing vendor risks, potential shipping issues, and having alternate backup suppliers in place.

Review your insurance coverages
Work with your agent or broker to ensure your business insurance policies protect against your most up-to-date exposures, such as liability coverages that help protect your company and your executives against environmental negligence claims. Consider property policies that allow you to repair damaged facilities up to Leadership in Energy and Environmental Design (LEED) certified standards.

 

How can your company reduce its carbon footprint?

Along with preparing for the negative effects of climate change, your business can also take steps to be part of the solution. Many institutions are reducing their carbon footprint, working toward an eventual NetZero goal, and discovering the economic benefits of doing so.
 

  • Assess, reduce and “green” your company’s energy usage — Buildings account for a large percentage of energy usage. Adopt energy reduction practices and utilize green energy (solar, wind power) for your facilities.
  • Consider carbon credits — Though this financial instrument is still in its infancy, it’s a way of offsetting your company’s carbon emissions.
  • Engage your employees in the effort — Your workers are closest to your processes and can be a great source of ideas to save energy in many areas of the business.
  • Pivot where possible — The climate change crisis is an opportunity for your company to explore new, more sustainable ways of operating — and potentially even new sources of income.


Don’t forget to measure and communicate your efforts. Corporate reports that reflect sustainable goals help amplify to both your internal and external stakeholders — and the public at large — your company’s commitment to mitigating the effects of climate change both for your business and for the planet.


 

This document is advisory in nature and is offered as a resource to be used together with your professional insurance advisors in maintaining a loss prevention program. It is an overview only, and is not intended as a substitute for consultation with your insurance broker, or for legal, engineering or other professional advice.

Chubb is the marketing name used to refer to subsidiaries of Chubb Limited providing insurance and related services. For a list of these subsidiaries, please visit our website at www.chubb.com. Insurance provided by ACE American Insurance Company and its U.S. based Chubb underwriting company affiliates. All products may not be available in all states. This communication contains product summaries only. Coverage is subject to the language of the policies as actually issued. Surplus lines insurance sold only through licensed surplus lines producers. Chubb, 202 Hall's Mill Road, Whitehouse Station, NJ 08889-1600.

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