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The increasing frequency and severity of extreme weather��events, ranging from wildfires in Canada to flooding in India,��Libya and Slovenia, and heatwaves in the US, southern��Europe, and Asia, have ensured climate change remains a��top fixture on corporate risk registers, particularly among��large-size companies (>€500mn annual revenue), where it��ranks as the fourth top risk overall, its highest-ever position.��It is also the #1 risk in Brazil and Turkey and a top #3 risk in��Greece, Italy, Mexico, and Slovenia.

The risk is threefold: physical, including loss or damage��to assets and business interruption; transition-related,��from moves towards a more sustainable economy and��regulatory and stakeholder pressures; and liability-related,��from climate litigation that could lead to reputational and��financial damage.

Physical risks are the key threat (see chart), with extreme��weather events believed to be costing the US economy��alone almost $150bn a year [1]. The utility, energy and��industrial sectors are most exposed. In 2023 wildfires��in Canada cut oil and gas output equivalent to 3.7% of��national production [2], while in manufacturing, water��scarcity is a potential threat to production and supplies of��critical goods and services.

“Although this year’s �ǿմ�ý Risk Barometer results on��climate change show that reputational, reporting and legal risks are regarded as lesser threats by businesses [ranking��outside the top four concerns, see chart], many of these��challenges are interlinked and we expect climate-related��transition and liability risks to increase as companies invest��in higher-risk, lower-carbon technologies, where bankability��and insurability are a challenge,” says Denise De Bilio, ESG��Director, Risk Consulting, �ǿմ�ý Commercial. “Business��will also face higher risk of greenwashing claims from��stakeholder scrutiny.”

On a more positive note, the �ǿմ�ý Risk Barometer��findings indicate businesses are focusing on net-zero��commitments while building operational and financial��resilience by climate-proofing their assets (see chart).

Gabrielle Durisch, Global Head of Sustainability Solutions��at �ǿմ�ý Commercial, says:��“We see companies shifting��to low-carbon business models, improving planning and��response to climate events, and implementing physical��measures to boost resilience. Some industries under��regulatory scrutiny might focus on adapting to low-carbon��business models and invest in clean technologies, while��others might concentrate on mitigating physical loss or��damage to assets and minimize supply-chain disruptions.”

Durisch adds:��“Our research shows businesses are also��seeking protection and financing mechanisms to address��the growing climate insurance protection gap.”

Supply chain resilience is expected to become a key��focus in 2024 as companies consider the impacts of��climate events on production and work closely with��suppliers to identify climate risks, and share sustainability��commitments and contingency plans, such as site��relocations or sourcing alternatives, De Bilio notes:��“We��know that socioeconomic factors, such as increasing��urbanization in areas exposed to climate change, are a��driver of nat cat insurance losses. With extreme weather��events the new normal, companies need to invest in��shoring up their supply chains. They need to focus on��resilience such as flood protection and reinforcing��infrastructure to reduce the vulnerability of assets, lower��the risk of disruption, and increase insurability.”