This is the regular newsletter from Everloop where we share how not to get lost in sustainability. This month we look at how climate risk presents a cost that most businesses are already absorbing, even if they’re not aware yet.
Climate change is already costing the UK economy 1.1% of GDP every year. That’s approximately £28 billion, according to the LSE Grantham Institute. Under current policies, that figure is projected to triple to 3.3% of GDP by 2050. To be clear, this isn’t a forecast. It’s happening now.
Businesses are absorbing their share of that cost every single year. Most just don’t know it, because it’s scattered across a dozen line items that nobody is adding up. There is no “climate” label, so they miss that it’s something they need to consider or do anything about right now. Instead, it’s relegated to the next budget cycle. Or the one after that.
In this edition, we discuss how climate change is hurting your business today, and future budget cycles to come. Plus, read on for an exciting update from Everloop on how we can help.
1. You are waiting for a catastrophic event
When most organisations think about climate risk, they picture a dramatic event: a warehouse underwater, a factory shut down, a supplier wiped out by a hurricane. And if they don’t have a factory or warehouse, it may not seem relevant at all. But focusing only on acute, catastrophic events means overlooking where climate change actually hits your business.
The more common reality is chronic, slow-burn impact. Perhaps demand for your product drops, or your customers’ business gets disrupted, dwindling its budget for your service. Machinery runs hotter and fails sooner. Absenteeism is creeping up and wellbeing suffers because climate anxiety, heat stress and respiratory conditions are becoming background noise in your workforce.
The drought that stresses your ingredient supplier in southern Europe, the monsoon that disrupts your manufacturer in Southeast Asia, the heatwave that reduces harvest yields or changes the flavours in your key sourcing region.
These scenarios are already showing up as supply delays, price volatility, dual sourcing costs and buffer stock decisions in businesses across every sector, and are often seen to be the “usual supply chain risks” and “costs of doing business”.
Your takeaways:
Broaden your evaluation of climate risk beyond acute events to include operational impacts
Start tracking the costs and impacts, tagging them under climate change - just like you do HSE incidents and near-misses.
Consider the trends, not just the numbers.
Evaluate the changes in different aspects of your operating model:
Is your HSE process adequate for a workforce operating in 44°C+?
What disruption might there be to your operations if storms in your area last one or two days longer and are more intense than before?
Have you accounted for increased energy costs from new cooling and heating needs, as seasonal patterns change?
2. Your climate data has a “best before” date
Many organisations say that they do not have a budget for climate risk data, so they make do with free publicly available data. The challenge is that the quality, granularity and currency of that data varies enormously. This difference matters more than most organisations realise.
Official flood maps are built on observed historical events and satellite observation only goes back around twenty years. That means they cannot capture floods that occurred before the satellite era. Equally, they are not always maintained or updated to reflect recent events. The maps look authoritative yet they are, in many cases, structurally incomplete and distort the actual patterns required to analyse your increasing risk.
The consequences play out in decisions that seem rational at the time. In 2011, seven industrial estates north of Bangkok, built on former rice paddies in a known flood basin became inundated. Almost 1,000 factories including those operated by Sony, Apple, Honda and Toyota were swamped, causing damage estimated at around $10 billion. Sony’s sensor manufacturing plant went under approximately three metres of water. Thousands of new cars sat covered in mud. Critical machinery that takes years to replace was destroyed. The official maps had said the area was safe. Honda and Sony both failed to deliver and lost market share.
In the US, approximately 20–25% of flood insurance claims occur outside officially designated high-risk zones (source), or even 40% as some of the recent estimates suggest (source). Significant damage happening in places classified as safe. Free flood maps are, it turns out, very expensive.
Your takeaways:
For material decisions such as site investment, insurance, disclosures and operational resilience, the data needs to be fit for purpose, not just available.
Not allocating adequate budgets for risk assessments early in the process may cost significantly more when the unseen risks materialise.
If you are in the Travel sector or Events, it is possible to forecast significant natural hazards 6-24 hours ahead. It might not feel like a lot but it is a difference between chaos and casualties and a calm Plan B implementation.
3. The rollback illusion
The regulatory simplification agenda in the EU has created a widespread assumption that the pressure is easing - but regulations are a reflection of a political climate, not climate science. The climate itself has not read the Omnibus.
Reporting requirements continue to arrive from multiple directions: investor due diligence, customer procurement questionnaires, insurance underwriting, and emerging national-level requirements in markets from India to Saudi Arabia.
In reality, this looks like losing out on points in a tender because you do not have much to say in that climate action section, or watching a retail listing wobble because a buyer has introduced new sustainability data requirements.
Your takeaways:
The organisations that will be best placed in five years to deal with a warming world are not those that froze. They are the ones that used the current moment of regulatory flux to build internal capability quietly, so that when requirements crystallise again, the work is already done.
Identifying and fixing business vulnerabilities is good business practice - and regulations or standards just provide a framework for working through this process.
4. Your bank and insurer already know your climate exposure - do you?
Insurance markets and lenders are sophisticated, data-rich, and ahead of most corporates on climate risk. Insurers are already withdrawing coverage from certain geographies and asset types, adjusting premiums based on climate exposure, and building climate stress tests into underwriting. Lenders are beginning to apply similar logic to loan pricing and covenant terms.
The implication is that the financial institutions your business depends on may already have a climate risk view of your operations that is more detailed than anything you have internally.
When your renewal comes in higher than expected, or a new facility proves harder to insure than anticipated, or an investor asks a question your sustainability team can’t answer – that is climate risk expressing itself financially, even if nobody in the business has called it that.
Your takeaways:
Insurance and hedging markets have the climate information for your sites way before you do - which will be reflected in the pricing. The cost of not having a climate risk view of your own business is that others have one for you.
Ask your broker directly whether any premium increases reflect climate exposure on specific sites or asset types.
If you are seeking new financing or refinancing, expect climate-related questions, and prepare for them before the conversation, not during it.
5. Nobody owns climate risk
Perhaps the most important reason climate costs accumulate unmanaged is structural: in most organisations, climate risk doesn’t have a clear owner and is often recorded somewhere next to carbon footprint and supply chain transparency under a header of “ESG Risk”.
The sustainability team produces a report. The operations team responds to disruptions as they arise. The finance team absorbs the costs under various headings. The board receives an annual update. Nobody is tracking the aggregate picture, identifying trends, adjusting business strategy or owning a mitigation roadmap.
The organisations that handle climate risk well tend to have one thing in common: they have assigned it. Someone at board level is accountable. Someone at the management level is tracking it. And there is a regular cadence - not just an annual report - at which climate risk is reviewed alongside financial performance.
Your takeaways:
Climate risk governance doesn’t require a new team - it requires a decision about who owns it, what they review, and when.
If there is no Board-level conversation and ownership, it will continue to be a reporting tick-box exercise that costs you money, rather than driving resilience and uncovering opportunities.
Climate risk management simply means your business has a future
Climate adaptation isn’t a sustainability initiative. It’s the ongoing work of keeping your business functional in a world that keeps changing.
Most businesses are optimised for a world that is already gone. A car engineered for Miami would get you nowhere in Siberia in February. The engineering isn’t wrong, it’s just designed for the wrong conditions.
The same question applies to your business: what world was it designed for, and how different are those from the conditions it will be operating in over the next five, ten, twenty years?
Get in touch via hello@everloop.agency if you need support with your climate risk assessment, climate resilience advise or are looking for climate risk data to integrate in your own analysis or tools.
Everloop update
We have recently joined forces with our long-standing physical climate risk partner WeatherTrade.net, and so going forward all their products and services will be part of our Everloop offering. It means that in addition to our existing Climate Risk & Resilience service offering, we are now able to offer site-specific Physical Climate risk data to broader range clients in more varied formats - from API, and deep technical hazard analysis to a broader tech-enabled physical climate risk modelling.
This move also means we get to work with the amazing Dr Elena Maksimovich much closer, and a wider range of our clients can benefit from her expertise and experience. She makes regular TV appearances, so we think it means we now have a celebrity in our midst, which is pretty cool for us!
More details on our updated Climate action & resilience offering can be found here.
For your toolkit
Climate Change Committee — UK Climate Risk Evidence Report, sector-level physical exposure:
Companies stand to gain up to 21 times return for every dollar invested in physical climate risk mitigation, according to new data-driven analysis from CDP
The case of Tesla factory in Germany: What happens when you do not do a risk assessment but just go with the vibes - and the result
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