How Businesses Can Manage Climate Risks in a Changing Global Economy

Top Ways Businesses Can Address Climate Risks and Build Long-Term Resilience

Understanding Climate Risks and Business Impacts

Climate change is no longer a distant environmental concern—it is a present-day business risk with tangible financial, operational, and strategic consequences. Across industries, companies are increasingly recognising that climate-related disruptions can affect everything from asset values and supply chains to workforce productivity and investor confidence.

Understanding the nature of climate risk and its implications is the first step toward building resilient and future-ready businesses.

What Is Climate Risk?

Climate risk refers to the potential negative impacts that climate change can have on business operations, financial performance, and long-term viability. These risks are broadly categorised into physical risks and transition risks, both of which are becoming increasingly material to corporate decision-making.

Physical Climate Risks

Physical risks arise from the direct impacts of climate change and can be either acute or chronic in nature.

• Acute risks include extreme weather events such as floods, hurricanes, heatwaves, wildfires, and severe storms. These events can cause sudden damage to physical assets, disrupt operations, halt production, and endanger employee safety.

• Chronic risks develop gradually over time and include rising average temperatures, sea-level rise, water scarcity, desertification, and ecosystem degradation. These long-term changes can reduce asset lifespans, affect agricultural productivity, strain water-dependent industries, and increase operating costs.

For example, prolonged heat stress can reduce labour productivity in manufacturing and construction sectors, while recurring floods can make certain facilities uninsurable or economically unviable.

Transition Risks

Transition risks stem from the global shift toward a low-carbon and climate-resilient economy. As governments, markets, and societies respond to climate change, businesses face risks linked to:

• Regulatory and policy changes, such as stricter emissions standards, carbon taxes, climate disclosure mandates, and environmental compliance requirements.

• Market and consumer shifts, including rising demand for low-carbon, sustainable, and ethically produced goods and services.

• Technological disruption, where advances in clean energy, electrification, or alternative materials can render existing business models or assets obsolete.

• Reputational risks, as stakeholders increasingly scrutinise corporate climate performance, environmental responsibility, and transparency.

Together, physical and transition risks influence corporate financial performance, investor assessments, regulatory compliance, access to capital, and overall competitiveness in a rapidly evolving global economy.

Also Read: 2025 Breakthrough Technologies Tackling Climate Change

The Business Case for Acting Now

The financial rationale for proactive climate risk management is becoming increasingly clear. Climate-related disruptions are already imposing measurable costs on businesses worldwide, and these costs are expected to escalate if risks remain unaddressed.

Reports from organisations such as the World Economic Forum estimate that climate hazards could drive between $560 billion and $610 billion in annual fixed asset losses by 2035 across listed companies if no meaningful adaptation measures are taken. These losses are largely driven by damage to physical infrastructure, interruptions in production, supply chain breakdowns, and prolonged operational shutdowns following extreme weather events.

In addition to physical damages, transition risks pose significant threats to profitability. Companies that fail to adapt to energy transitions, carbon pricing mechanisms, or evolving consumer preferences may face higher operating costs, declining market share, stranded assets, and reduced investor confidence. For carbon-intensive industries in particular, delayed action can result in sudden and costly adjustments when regulations tighten or markets shift.

Importantly, the cost of inaction is already visible. Physical climate risks are contributing to lost working hours, reduced productivity, rising insurance premiums, and increased maintenance and repair costs across multiple sectors.

These realities underscore that climate risk management must be embedded within core business strategy, enterprise risk management, and long-term planning—rather than treated as a peripheral environmental or compliance issue.

Conduct Comprehensive Climate Risk Assessments

A robust understanding of climate exposure is essential for developing effective mitigation and adaptation strategies. Comprehensive climate risk assessments enable businesses to identify vulnerabilities, prioritise investments, and make informed strategic decisions.

Perform Scenario and Vulnerability Analysis

Scenario analysis is a critical tool for assessing how different climate futures could affect a company’s operations and financial outcomes. By examining a range of plausible scenarios—such as higher global temperature pathways, increased frequency of extreme weather events, or accelerated policy action—businesses can evaluate potential impacts on:

• Revenue streams and operating costs

• Asset values and depreciation timelines

• Supply chain continuity and logistics

• Workforce health, safety, and productivity

Advanced tools such as climate data platforms, geospatial mapping, and spatial modelling frameworks allow organisations to assess location-specific risks and identify both direct and cascading impacts across regions and business units. These insights support more resilient capital allocation, insurance planning, and operational design.

Map Value Chains and Asset Exposure

Climate risk does not stop at a company’s direct operations. Upstream suppliers and downstream customers are often equally vulnerable to climate-related disruptions, making value chain analysis a critical component of risk assessment.

Businesses should map their entire value chain to identify:

• Geographic concentrations of suppliers and critical inputs

• Exposure of logistics routes and distribution hubs to climate hazards

• Dependence on climate-sensitive resources such as water, energy, or agricultural commodities

Supply chain disruptions triggered by floods, droughts, or extreme temperatures can lead to inventory shortages, delayed deliveries, and higher procurement costs. Diversifying sourcing, engaging with suppliers on resilience planning, and incorporating climate criteria into procurement decisions can significantly reduce these risks.

Example:
A retail company reliant on suppliers located in flood-prone regions may experience repeated inventory shortages and rising transportation costs. By proactively mapping supply chain nodes and assessing regional climate exposure, the company can identify alternative sourcing options, build redundancy into logistics networks, and develop contingency plans that minimise disruption during extreme events.

Adaptation Planning and Strategic Response

As climate impacts intensify, adaptation has become as critical as mitigation for businesses operating in a volatile global environment. Adaptation planning focuses on reducing vulnerability to physical climate risks while ensuring continuity of operations, protecting assets, and maintaining stakeholder confidence.

A strategic response requires companies to embed climate resilience into infrastructure, workforce policies, and supply chain design rather than treating adaptation as a one-time investment.

Building Resilience into Infrastructure

Climate adaptation begins with strengthening physical and operational infrastructure to withstand extreme weather events such as floods, heatwaves, droughts, and storms. Businesses are increasingly reassessing the location, design, and durability of their facilities to reduce exposure to climate-related disruptions.

In flood-prone regions, this may involve elevating manufacturing plants, warehouses, and data centres, installing advanced drainage systems, or constructing flood barriers around critical assets. In areas facing rising temperatures, companies are reinforcing cooling systems, upgrading energy-efficient building materials, and designing facilities that maintain functionality during prolonged heat stress.

Water-stressed regions require investments in rainwater harvesting, wastewater recycling, and smart irrigation systems to ensure long-term operational viability.

From a technological standpoint, digital tools play a growing role in infrastructure resilience. Artificial intelligence-driven climate monitoring systems and predictive analytics allow businesses to assess risk scenarios, forecast extreme events, and plan maintenance or shutdowns proactively.

Microgrids, renewable energy storage, and decentralised power systems further enhance resilience by reducing dependence on vulnerable central grids during climate-induced outages.

Beyond risk reduction, resilient infrastructure sends a strong signal to investors, insurers, regulators, and customers. It demonstrates preparedness, lowers long-term operational costs, and supports business continuity, making companies more attractive in an era of climate-conscious capital allocation.

Integrating Behavioral and Workforce Adaptations

Human capital is often one of the most overlooked dimensions of climate adaptation. Extreme heat, air pollution, floods, and unpredictable weather patterns directly affect employee health, safety, and productivity. Businesses that proactively adapt workforce practices are better positioned to sustain performance while safeguarding employee well-being.

In hotter climates, organisations are introducing heat-ready operations, including revised shift timings, mandatory cooling breaks, hydration protocols, and protective equipment. Flexible work arrangements—such as remote or hybrid models—allow continuity during extreme weather events that disrupt commuting or local infrastructure. Climate-aware scheduling also reduces absenteeism and health-related productivity losses.

Training and awareness are equally important. Equipping managers with climate risk literacy enables faster decision-making during disruptions and fosters a culture of preparedness. Climate training programs can help employees understand emergency protocols, resource efficiency practices, and adaptive work methods, aligning workforce behaviour with broader resilience goals.

By integrating climate considerations into occupational health and safety frameworks, businesses not only comply with emerging regulatory expectations but also strengthen employee trust and retention—an increasingly important advantage in competitive labour markets.

Strengthening Supply Chain Resilience

Global supply chains are among the most vulnerable components of business operations in the face of climate change. Extreme weather events, water scarcity, and climate-driven geopolitical instability can disrupt sourcing, production, and distribution networks. Strengthening supply chain resilience requires diversification, localisation, and the adoption of agile digital systems.

Diversifying and Localising Suppliers

Over-reliance on a single supplier or climate-vulnerable region amplifies operational risk. Diversification across geographies and supplier bases reduces exposure to regional climate shocks such as floods, droughts, or hurricanes. Increasingly, companies are also exploring supplier localisation strategies, sourcing closer to end markets to reduce transport emissions while enhancing reliability.

Developing multiple logistics routes and contingency suppliers further strengthens redundancy. This approach allows businesses to reroute shipments, switch suppliers, or adjust production volumes when disruptions occur.

A notable example is Walmart’s Project Gigaton, which encourages suppliers to cut emissions while strengthening climate resilience across the retail value chain. By aligning sustainability goals with supplier performance, the initiative improves environmental outcomes and reduces systemic climate risks, benefiting both Walmart and its global supplier network.

Implementing Flexible and Agile Systems

Digital transformation is becoming central to climate-resilient supply chains. Advanced tools such as artificial intelligence and machine learning enable predictive maintenance, demand forecasting, and early identification of potential disruptions. Blockchain technology enhances traceability and transparency, allowing companies to monitor supplier practices, resource usage, and climate risks in real time.

Agile supply chain systems empower businesses to respond dynamically—shifting production, adjusting inventory levels, or changing transport routes based on evolving climate conditions. This flexibility not only reduces downtime and financial losses but also improves customer reliability in uncertain operating environments.

Ultimately, resilient supply chains are not just defensive mechanisms; they are strategic assets. Companies that invest in adaptability and transparency gain competitive advantage by maintaining service continuity while meeting rising expectations around sustainability and risk management.

Climate Mitigation and Low-Carbon Transition

Align with International Climate Goals

Complying with frameworks such as the Paris Agreement positions a business for long-term viability. Paris alignment often requires emissions reduction, carbon pricing strategies and investment alternatives that reduce dependency on fossil fuels.

Adopt Renewable and Energy-Efficient Practices

Energy use is a major source of climate risk and cost volatility. Investing in renewables (solar, wind), energy efficiency, and clean technologies can reduce emissions and operational risk while lowering energy expenses.

Transparent Reporting and Governance

Climate-Related Financial Disclosures

Frameworks like the Task Force on Climate-related Financial Disclosures (TCFD) help companies systematically disclose climate risks and risk management actions to investors and stakeholders. These disclosures improve transparency, support risk pricing and enhance corporate credibility.

Integrate Climate Risk into Governance

Boards and leadership teams should review climate risk regularly, incorporating it into risk registers, strategy documents and enterprise risk management systems.

Collaboration and Policy Engagement

Engage Across Sectors

No business operates in isolation. Collaboration with competitors, suppliers, governments, NGOs and local communities helps share risk insights, co-develop solutions, and shape supportive climate policies.

Policy and Regulatory Strategy

Regulations like those proposed in California requiring climate financial risk reporting illustrate how policy can drive corporate action and transparency.

Monitoring such changes enhances compliance and can create competitive advantage.

Innovation and New Market Opportunities

Develop Climate-Smart Products and Services

Climate risks also create demand for solutions such as climate-resilient infrastructure, early warning systems, insurance products, and sustainable agriculture. Businesses that innovate in these areas can carve out new revenue streams while reducing risk.

Circular Economy and Resource Efficiency

Adopting circular principles—recycling, material reuse, and waste reduction—lowers environmental impact and resource scarcity risks, making operations more robust.

Case Studies and Practices

Unilever’s Climate Risk Assessment

Unilever conducts comprehensive climate risk assessments to identify threats to its supply chain, operations and markets, then responds with adaptation measures such as water efficiency programmes and renewable energy investments.

Broader Business Adaptation Trends

Many companies now embed climate adaptiveness into core processes—using data analytics to forecast weather impacts, diversifying suppliers, and engaging stakeholders to co-develop resilience solutions.

Conclusion

In today’s changing global economy, climate risk is no longer a peripheral concern—it is a core business challenge and opportunity. Companies that proactively assess, adapt to, and mitigate climate risks can protect their assets, enhance resilience, attract investors, reduce costs, and build competitive advantage.

Effective climate risk management demands a blend of strategic planning, technological investment, governance reform, sustainability reporting and collaboration across sectors. By acting decisively now, businesses not only safeguard their future but also contribute to global climate stability and sustainable economic growth.