Climate change: the emerging crisis that all organizations need to assess

Published: Friday, 11 December 2020 13:17

The COVID-19 pandemic and its devastating consequences caught plenty of organizations off guard. While it can be difficult to contemplate the next big crisis in the midst of the current one, this is exactly the time to look ahead to minimize any future surprises, says Jim Wetekamp, and topping many experts’ lists of the next big crisis is climate change.

In fact, the World Economic Forum ranked environmental issues as the number one global business risk at Davos 2020 – and with good reason. Looking back to last year, there were 14 weather and climate-disaster events, which is double the average of 6.3 events for each year between 1980 and 2018.

C-suites and investors alike are increasingly prioritizing climate-related risks. And now is the time for risk managers to determine what impact a climate-related event could have on the business and what can be done immediately to mitigate those effects.

How to increase your overall climate resiliency today

Here are five steps every risk manager can take to evaluate exposure to climate-related risks and be prepared for the next potential crisis:

  1. Add climate-change risk to your risk register. Factor in the potential impact of weather and climate incidents. Do you have warehouses near the coast where tropical storms are common? Do you have production facilities located in wildfire- and earthquake-prone areas? Is a hospital in your network located in a flood zone, requiring you to quickly move patients to another facility in the aftermath of a big storm?
  2. Prioritize mitigation procedures based on severity. If a warehouse storing high-demand products was flooded by a tropical storm, would you still be able to get products to customers on time? Prioritize business-critical risks ahead of less pressing threats that don’t risk disrupting service and revenue.
  3. Assess your third-party suppliers’ risk awareness and resilience to climate change. Don’t let third parties’ vulnerabilities sneak up on you and become your own vulnerabilities. As the current health crisis has taught us, risk velocity is a huge blind spot, and risk managers, especially at organizations that rely on global suppliers, need to stay prepared. Assess your partners according to pre-determined key performance indicators (KPIs) to make sure they’re operationally resilient to the effects of climate change. Incorporating such criteria into the vendor vetting process today can make sure there are no surprises down the road.
  4. Leverage technology to proactively drive climate risk management strategy. Advances in data analytics and geolocation capabilities can help more precisely gauge the impact of climate risk on all parts of your organization – including direct costs as well as indirect and more difficult-to-measure costs like a sudden hit to brand reputation.
  5. Prioritize data access and analytics. The ongoing pandemic has crystalized the demand for easily accessible, real-time risk intelligence.  The ability to make quick and informed decisions to protect the business is critical in any crisis.

Increasing your climate-risk resiliency

Once you build climate-related risk into your regular risk management workflows, you can begin to understand where your greatest vulnerabilities are and make strategic changes to protect yourself against future crises. Risk-mature organizations simultaneously assess and mitigate the immediate impacts of potential threats, while considering and planning structural changes to protect the organization down the road.

Diversifying the organization’s network of business partners outside of high-risk areas is the first line of defense / defence. This includes ensuring suppliers and partners are physically located in different regions, and that the company has a handful of verified suppliers for key business processes and product components on standby, so if one area is hit with a weather-related incident, there are unaffected parties that can help. While it’s possible to increase supply diversification today, it takes time to build a network of trusted partners, especially for strategic supply.

In addition to ditching mono-source mentalities, manufacturers and retailers should consider moving production plants and distribution centers closer to home. It’s challenging to anticipate and respond to adverse weather or climate-related events in general – but even harder when facilities are in natural disaster-prone areas halfway around the world, especially if you lack a local presence.              
Factoring climate resiliency into facility design and operations is critical for ensuring business continuity. Elevated floor levels, on-site power generation, windows that provide natural ventilation, and roof-installed electrical equipment can all help an organization maintain operations during and after a big storm.

The effects of climate change are already being felt by organizations everywhere. And according to many experts, a climate-related global crisis may not be far off. Risk managers play a critical role in assessing these risks and delivering reliable data so leadership can make the most informed decisions possible to safeguard the organization’s ability to achieve its strategic objectives today and into the future, even amidst a crisis.

The author

Jim Wetekamp is the CEO of Riskonnect, a provider of integrated risk management software. Jim is a recognized expert on enterprise risk, supply chain, and third-party vendor management.