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Addressing the climate risks your organization faces in 2022 and beyond

2021 was a highly significant year when it comes to both the impact of the changing climate and also in terms of awareness of this risk. Adriano Lanzilotto looks at how organizations need to respond in 2022.

The latest IPCC (Intergovernmental Panel on Climate Change) report certainly played a role in drawing more attention to climate risk in 2021; the report painted a stark image, arguing that even with significant sustained CO2 emissions reductions it could take around 30 years for the planet to actually stop heating up. In addition to this, the recent 2021 United Nations Climate Change Conference (COP26) held in Glasgow, UK, grabbed the attention of many key stakeholders, as global leaders look to find solutions to limit warming to 1.5C above pre-industrial levels.

It is clear that as a society we are facing a huge collective challenge to reduce the impact of a changing climate for generations to come. The size of this challenge shouldn’t, however, discourage action from the business community as organizations can initiate measures to reduce the impact of climate risk today. Risk managers have a key role to play here, as they can guide their companies towards a more resilient future. Not only can this future be more sustainable, with buildings made to last for the long-term, but potentially also more profitable, as businesses can avoid costly rebuilding when they focus on making their existing properties well-protected to such things as extreme weather events.

What are the risks?

The first step of this journey involves understanding what the risks out there are and how damaging they could potentially be. For instance, is a business located in an area consistently impacted by flooding or wildfires – two risks which can cause significant property damage, potentially impacting facilities and/or supply chains, not to mention people’s jobs and the vibrancy of the communities around them. The impact of these risks may well increase as a result of climate change, as numerous quantitative models forecast that areas prone to extreme rainfall will become wetter (and more prone to flooding). On the other side of the spectrum, dry areas of the planet are often now becoming drier, making the need to deal with wildfire risk more pressing for many businesses. This highlights the importance of understanding these perils, as climate risk can physically impact a business’ property in many ways.

Once an organization’s leaders understand the risks, they can begin to assess how exactly these may impact their operations and they can then implement the right preventive measures. Risk managers are an important part of this process, as they can help answer questions that could lead to greater resilience: where exactly are key buildings located? Are these areas vulnerable to flooding resulting from increased rainfall or rising sea levels? How could rising temperatures also impact locations? Questions like these can draw out insight which can inform an effective risk mitigation strategy and build climate resilience.

Finding the right mitigating measures

Using data to inform this process is key, as businesses must work to generate both short and long-term climate resilience. In the short-term, risk managers can work to implement the right form of physical protective measures. If these mitigation measures are highly targeted and informed by sound data, they can have a significant impact by reducing the level of risk present at key facilities. For instance, data can highlight whether flood barriers could provide protection, or whether a building envelope could be reinforced to make it more wind proof.

Thinking about the long term, data can also inform key decisions regarding the location of important facilities or supply chains; data can reveal the long forming weather patterns triggered by climate change, allowing risk managers to evaluate whether it would make more sense to relocate operations instead of investing in protective measures.

We work directly with lots of our clients on this issue, providing them with the tools they value to generate greater climate resilience. Here, data is an incredibly important component, informing assets such as the FM Global Resilience Index and our Natural Hazard Maps which can provide clients insight into the risks they face. These resources are just a couple of the examples of how FM Global and the wider insurance industry is supporting clients with climate risk, making such threats more understandable and manageable.

While climate change and the associated risks may appear inevitable, climate risk can be mitigated if organizations are both prepared and proactive. Risk managers will need to help their organizations remain on the front foot, combatting the challenge holistically to build resilience. Decisions must be made using sound data and analysis, addressing climate risk in a methodical manner to secure long-term continuity.

The author

Adriano Lanzilotto is Vice President - Client Service Manager, FM Global.

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