Operational Impact of Climate Decisions

🌍 Climate Change is Disrupting Global Supply Chains—What Does This Mean for Businesses? A recent study by Nora Pankratz, Ph.D. and Christoph Schiller, published in The Review of Financial Studies, offers a sobering insight into how climate hazards, particularly heat, are impacting firms and reshaping supply chains globally. 📉 Key Findings from the Study: 💥 Heat exposure reduces suppliers' operating income by 13.8% for a one-standard-deviation increase in heat days—and the effects ripple downstream, cutting customer operating income by 0.6% per quarter. 🚫 Firms are 7.4% more likely to terminate supplier relationships when heat exposure exceeds expectations, with this likelihood increasing for repeated or extreme deviations. 🌱 After terminating risky suppliers, businesses actively choose replacements with lower climate risk, reflecting proactive adaptation strategies. 🛠️ Customers also adjust by increasing inventories, cash holdings, and R&D investments to buffer against disruptions. 📊 A Broader Picture: The study highlights that firms in developing countries, often more vulnerable to climate change, are disproportionately impacted. Suppliers in countries with low climate adaptation readiness face higher termination risks, emphasizing the need for systemic solutions. 💡 My reflections: 🌩️ Climate risk isn’t just financial—it’s systemic. As businesses retreat from vulnerable regions, they risk exacerbating global inequality and isolating the areas most impacted by climate change. The true cost of climate risk might be the long-term instability created by economic withdrawal from these regions. 📉 Relying on short-term signals like observed heat days for long-term decisions is risky. Many firms act reactively, focusing on immediate climate disruptions rather than the underlying trajectory of climate projections. This approach could leave them exposed to larger, systemic risks in the future. 🤝 Resilience requires collaboration, not isolation. At a time when nations are becoming more protectionist and the dark clouds of trade wars loom large, businesses have a choice: sever ties with vulnerable suppliers or co-create resilience. The study reveals that many firms are opting to replace suppliers in climate-vulnerable regions, but imagine the alternative. What if businesses worked alongside suppliers to share technology, co-develop adaptive solutions, or finance localized climate resilience? This isn’t just a moral question—it’s a strategic one. Investing in mutual resilience could secure long-term supply-chain stability in an increasingly uncertain world. 🔗 https://lnkd.in/eBMv8GN9 How do you see businesses navigating these challenges? Can collaboration replace isolation as the default strategy for addressing climate risk? #ClimateChange #SupplyChain #Resilience #BusinessStrategy #Sustainability #PositiveScholarship

Climate change is reshaping business performance today ❗ Rio Tinto lost ~USD 800 million in revenue not from destroyed assets, but because cyclones stopped iron ore production and shipping. ❗ After Hurricane Harvey, US businesses suffered 20× more losses from lost revenue than from physical damage. ❗ Floods in Thailand disrupted electronics and auto supply chains so badly that the government warned buyers may “look elsewhere” due to reliability concerns. 👉 The pattern is clear, that real climate cost for businesses is business interruption, not repair bills. 🍃 This is where the opportunity emerges. In a world of frequent disruption, reliability becomes a competitive advantage. ✅ Companies that can keep operating, through diversified supply chains, resilient infrastructure, and better data, will win contracts, retain customers, and stabilise earnings while others fall behind. ✅ Climate resilience is following a familiar path: from cost → to necessity → to strategic edge. ➡️ The most important shift for leaders now is to move from managing climate risk to building operational advantage. #ClimateChange #BusinessStrategy #Resilience #SupplyChains #RiskManagement #SustainableFinance

Climate Risk = Business Risk 🌍 Climate impacts are now core sustainability concerns. They are operational, financial, and strategic risks that increasingly shape business performance. Extreme weather events are damaging infrastructure more frequently, increasing repair costs, downtime, and capital expenditure requirements. Heatwaves are reducing workforce productivity, increasing health incidents, absenteeism, and operational inefficiencies, particularly in outdoor and labor-intensive sectors. Droughts are constraining access to critical resources such as water, raising input costs and disrupting production processes across multiple industries. Sea-level rise is placing coastal assets at risk, forcing companies to consider costly adaptation measures, relocation, or asset write-downs. Wildfires are disrupting transportation routes, logistics networks, and direct operations, amplifying supply-chain fragility. Greater climate volatility is complicating long-term planning, increasing uncertainty in forecasting, procurement, and investment decisions. Energy systems face rising exposure to extreme weather, threatening the reliability of electricity and fuel supply while driving higher operating costs. Assets exposed to climate risk are losing value, affecting balance sheets, financing conditions, and access to capital. Rising temperatures are driving higher cooling and heating demand, increasing energy consumption and operational expenses. Severe weather events are delaying transport and logistics, impacting delivery timelines, costs, and customer satisfaction. Climate-related health risks are disrupting business continuity through higher healthcare costs and reduced workforce availability. Insurance markets are responding through higher premiums, reduced coverage, and exclusions, shifting a growing share of climate risk directly onto companies.

*Edited to reflect new articles in comments* The Southern Ocean around Antarctica is undergoing an unexpected and alarming transformation: instead of becoming fresher from melting ice, it's rapidly getting saltier. Since 2015, sea ice has shrunk by an area the size of Greenland and hasn't returned, suggesting a major shift in the climate system. Saltier surface water draws heat from the deep ocean, making it harder for sea ice to regrow and triggering a feedback loop that accelerates warming, intensifies storms, threatens wildlife, and raises global sea levels. Scientists warn this may mark a climate tipping point. ⚠️ Implications for Business Risk 1. Global Supply Chain Disruption 🔍 Sea-level rise and extreme weather may worsen, particularly in Asia-Pacific and coastal hubs. 🔍 Antarctic changes may alter storm tracks, increasing shipping risks, insurance premiums, and port disruptions. 2. Carbon Price Volatility 🔍 If oceanic carbon sinks fail, carbon markets will tighten. Carbon-intensive companies may face higher offsets or penalties. 🔍 Climate policy could move faster and more severely than anticipated. 3. Asset Revaluation 🔍 Physical assets (real estate, infrastructure, agriculture) in vulnerable regions will face write-downs or stranded asset risks. 🔍 Water-intensive industries will suffer from changing freshwater availability and ocean acidification. 4. Investor and Regulatory Scrutiny 🔍 Climate transition and physical risks are increasingly priced into ESG frameworks, TCFD/ISSB reporting, and investor expectations. 🔍 This new data will likely accelerate regulatory demands for climate scenario planning and risk disclosure. 5. Reputation and Resilience 🔍 The narrative has shifted: climate impacts are no longer distant or abstract. Stakeholders are watching how companies respond to planetary tipping points. 🔍 Businesses seen as slow to adapt may face loss of social license or talent, especially from younger generations. 🧭 What Can Business Leaders Do Now? ➖ Reassess climate risks using worst-case scenarios. The models are evolving, so must your resilience planning. ➖ Review your exposure to supply chain bottlenecks, insurance liabilities, and vulnerable assets. ➖ Accelerate decarbonization, not just for compliance but for long-term viability. ➖ Engage in collective action, especially in sectors like finance, shipping, food, and mining that shape global climate dynamics. The UN Global Compact Network Australia is creating a climate reporting community of practice, the content and discussions will respond to the demands of the businesses participating in the community. Deep dives into climate risks and scenario planning have already been raised as areas to explore.

It’s increasingly clear that bold climate action is the smartest business choice. Climate impacts are already hitting every part of supply chains, from sources of materials, to how products are transported and where they are sold. Companies risk seeing 7% carved off corporate earnings annually by 2035 due to climate impacts.   But there’s also good news – the global clean energy transition is booming, set to hit US$2 trillion this year alone, even if we need to see its huge benefits shared far more widely.   Setting ambitious goals to decarbonize and achieving them, and investing in adaptation and resilience, makes total business sense.   According to a recent report by the World Economic Forum: 👉 Industries can reduce 10-60% of their emissions at no or limited additional cost. 👉 Companies can expect up to $19 in benefits for every $1 invested in adaptation and resilience.   Climate-proofing is no longer optional for businesses. It is a necessity. And a massive opportunity too good to miss.

The European Commission's 2026 study on the climate transition and public finances arrives at a conclusion that should reframe board-level thinking on sustainability risk: a net-zero trajectory is fiscally sustainable, but the path there will fundamentally restructure how governments raise and spend money. The analysis, conducted using two independent macroeconomic models across all EU member states, finds that revenues lost from declining fossil fuel taxation are more than offset by new income streams, including ETS1, ETS2, the Carbon Border Adjustment Mechanism (CBAM), and the removal of fossil fuel subsidies. The fiscal arithmetic can work. What differs is the distribution of the adjustment. Several findings demand the attention of sustainability leaders, CFOs and board audit committees. The International Monetary Fund estimates climate-related public spending could increase sovereign debt by 10 to 15% of GDP by 2050. Delayed carbon pricing adds a further 0.8 to 2% of GDP annually. For businesses operating across EU jurisdictions, sovereign fiscal stress is not an abstract risk. It translates directly into tax policy volatility, subsidy withdrawal and regulatory uncertainty. Carbon pricing alone could generate revenue equivalent to 0.9% of GDP by 2050, but tax base erosion reduces the net figure available for balancing to just 0.4% without complementary measures. Corporates relying on current tax structures to model long-range cost bases are working with assumptions that will not hold. Member states are not starting from the same position. Poland and Romania remain heavily dependent on EU financing to fund their transition, whilst Denmark and Spain are mobilising domestic public and private capital at scale. Supply chain exposure to high-dependency member states carries regulatory and operational risk that boards should be stress-testing today. The broader message is clear: the transition does not threaten fiscal stability, but it will demand active management of the revenue and expenditure shifts it triggers. Companies that treat this as background noise rather than a strategic input are accepting avoidable risk. Understanding the intersection of climate policy and financial materiality is now a core board competency. Platforms such as Plan A (plana.earth) are built to translate this regulatory and fiscal complexity into the decision-ready data that leadership needs.

🌍⚡️ Why are weather, water and climate Insights Imperative for the #Renewable #EnergyTransition? For governments and companies investing in #renewableenergy, understanding how weather and climate variability impact energy generation and demand is a critical advantage. A new report from World Meteorological Organization, International Renewable Energy Agency (IRENA), and Copernicus ECMWF Climate Change Service shows why: ✅ Operational Resilience: Climate-informed planning helps businesses anticipate energy supply fluctuations — reducing downtime, improving load management, and protecting infrastructure investments. ✅ Risk Management: From El Niño’s impact on wind speeds to droughts affecting hydropower, climate variability directly affects energy yields — and by extension, revenue projections, power purchase agreements (PPAs), and asset valuations. ✅ Investment Confidence: Institutional investors and financiers increasingly demand climate risk transparency to ensure projects remain bankable under future climate scenarios. ✅ Competitive Edge: Companies that leverage seasonal forecasts and climate data can optimize procurement strategies, plan for seasonal peaks, and negotiate better contracts with suppliers and off-takers. ✅ Compliance & Reporting: As disclosure requirements evolve (think: TCFD, CSRD), integrating climate risks into corporate energy strategies will become non-negotiable — both for corporate ESG reporting and to future-proof business models. 📊 The numbers speak for themselves: Solar capacity grew by 32% in 2023 Wind surpassed 1,000 GW By 2030, companies will need to operate within a landscape targeting 5,400 GW of solar and 3,000 GW of wind — all subject to climate variability 💡 The message is clear: In a climate-constrained world, resilient energy strategies = sustainable energy Proud to be part of the team working on this report. Thanks to Celeste Saulo Francesco La Camera Carlo Buontempo 🔗 Full report: https://lnkd.in/euQ7p8bx

Climate change is no longer an environmental debate. It is an economic variable. The Strategic Study on the Economic Impacts of Climate Change in Brazil, developed under the Brazil 2050 Strategy, delivers a clear message: the cost of inaction exceeds the cost of adaptation. Agriculture emerges as one of the primary transmission channels of climate risk to the broader economy. When productivity declines, the effects ripple outward: food inflation, reduced income, food insecurity, and loss of international competitiveness. For this reason, more ambitious climate policies are not a cost. They are economic protection. The 2°C scenario represents a critical inflection point. It requires coordinated action, yet it preserves productive capacity, macroeconomic stability, and food security. Within this space, the private sector plays a decisive role. In our case, this means transforming climate risk into operational efficiency. The Renove Program is a practical example: pasture restoration, sustainable intensification, improved productivity per hectare, and reduced pressure on new natural resources. This is adaptation in the field, with direct impact on emissions, efficiency, and competitiveness. In addition, we continue to advance through: • Consistent investments in renewable energy • Reduction in natural resource use throughout the value chain • Rigorous standards in quality, traceability, and operational efficiency • Innovation applied to sustainable production Food security and climate policy move together. In a world shaped by geopolitical tensions, food is a strategic asset. Access the full study: https://lnkd.in/dq7carKH

What would you do if your business's financial health depended on the weather? That’s not just a hypothetical. Increasingly, climate risks are reshaping how lenders assess the creditworthiness of businesses. Here’s why that matters and what it could mean for your bottom line. Let’s start with a simple truth: Not all loans are created equal. Loans backed by physical assets like commercial real estate tend to have higher recovery rates in case of default. Why? Because there’s a tangible asset something with value to recover, compare that to unsecured loans, where lenders are often left empty-handed if things go south. Now, Layer climate risk onto this equation. Imagine A factory located in a region prone to floods or hurricanes. The more vulnerable the location, the greater the risk that the physical asset could be damaged or even wiped out by extreme weather. That could significantly lower the recovery rate for lenders, turning what might have been a manageable risk into a major financial headache. This is where ESG (Environmental, Social, and Governance) maturity comes into play. Companies with robust climate risk strategies those proactively safeguarding their operations and assets are better positioned to weather the storm. But here’s the kicker: those that aren’t? They might face higher borrowing costs or even find themselves cut off from certain financial institutions altogether. According to the Global Risk Report 2024, climate-related risks are now among the top global risks over the next decade. And in finance, these risks translate directly into higher LGD (Loss Given Default) estimates. For borrowers, this means two things: 1) You’ll pay more to access capital if your ESG profile isn’t up to scratch, 2) You might need to rethink your climate strategy not just for the planet, but for your financial survival. From my perspective, this isn’t just about risk mitigation. It’s about staying competitive in an evolving market. Financial institutions are becoming more selective, and businesses need to adapt. By improving ESG maturity, companies can not only secure better loan terms but also position themselves as resilient players in a world where climate risk is no longer a distant threat but a present reality. The bottom line? Climate risk isn’t just an environmental issue it’s a business issue. And how you respond could make all the difference. What steps is your business taking to adapt to this new financial landscape? Let’s discuss this in the comments. ⬇️

🌿🔍 How Corporate Climate Change Mitigation Actions Affect the Cost of Capital Climate change mitigation is becoming a pivotal factor in determining the financial health of businesses. A recent study led by Yizhou Wang, Siyu Shen, Jun Xie, Hidemichi Fujii, Alexander Ryota Keeley, and Managi Shunsuke, published earlier in May 2024 in Corporate Social Responsibility and Environmental Management, sheds light on a critical aspect of this dynamic: how corporate climate actions influence the cost of capital. Key Findings: - Higher Emissions, Higher Costs: The study, which analysed data from approximately 2,100 Japanese listed companies between 2017 and 2021, reveals a clear correlation between corporate emissions and the cost of capital. Companies with higher carbon intensity face increased costs of equity, debt, and weighted average cost of capital. - Benefits of Transparency: Companies adhering to the FSB Task Force on Climate-related Financial Disclosures (TCFD) guidelines and transparently sharing climate-related information benefit from lower overall capital costs. While such disclosure is linked to an increased cost of debt, it concurrently lowers the cost of equity and overall capital, underscoring the financial benefits of transparency and accountability in climate actions. - Commitment vs. Action: Importantly, the study found that mere corporate commitment to climate change, as opposed to tangible climate actions, showed no significant impact on the cost of capital. This highlights the significance of actionable strategies over symbolic commitments. - Industry-Specific Impact: The relationship between climate mitigation actions and the cost of capital was notably stronger in industries where climate change is recognised as a material issue. This suggests that industry context plays a crucial role in how climate actions influence financial outcomes. Strategic Recommendations: - Adopt TCFD Guidelines: Aligning with TCFD recommendations and prioritising actionable climate strategies can lower your company's cost of capital. - Industry Focus: For sectors where climate change is a material issue, such as energy, utilities, and manufacturing, the financial incentives for robust climate actions are even more pronounced. - Move Beyond Commitments: Implementing concrete climate actions rather than just commitments can significantly enhance your financial standing. It's also important to note that as of 2024, the Task Force on Climate-Related Financial Disclosures (TCFD) has transferred its monitoring responsibilities to the International Sustainability Standards Board (ISSB). Conclusion: Proactive climate actions and transparent disclosures are not just ethical imperatives but also smart financial strategies. Access the article here: https://lnkd.in/gb-ke9PP What are your thoughts on the impact of climate actions on the cost of capital? Professor John Cole OAM Brendan Mackey John Thwaites Jacqueline Peel