What You Need to Know to Mitigate the Risk of Climate-Related Disasters
As climate-driven disasters continue to disrupt human life and commerce, climate scientists and businesses continue to partner on solutions. Climate change has been identified as an emerging threat to the financial stability of the U.S., as its increasing amplification of natural disasters has imposed significant costs upon the public and the economy.
Physical climate risk is understood in the business community as risks to a company due to the physical effects of climate change. Physical climate risk is categorized into acute risks and chronic risks. Acute risks stem from immediate events such as hurricanes, floods, and wildfires. Chronic risks stem from longer-term pattern shifts — such as sea level rise, or droughts in areas which haven’t experienced drought before.
Climate Risk Assessments Provide Supply Chain Visibility
As the planet undergoes significant shifts in climate patterns that contribute to billions of dollars in damages and lost revenue, companies are faced with several challenges: identifying their risk; quantifying that risk; reporting the risk; and mitigating the risk. A climate risk assessment helps companies to uncover hidden climate-related risks in their supply chain.
We can think of these acute and chronic risks increasing across three dimensions simultaneously: frequency, amplitude, and type. First, we know that extreme climate events are increasing in frequency — picture a graph of a wave whose peaks and valleys are pulled closer and closer together every year. Second, we also know that these risks are increasing in amplitude — the waves are becoming taller every year as well, creating more economic devastation and loss of life.
What we see recently is a third dimension: The types of risks are multiplying, too — think of the single wave being split out into multiple waves of different colors.
We now have to expect more than just floods, wildfires, and hurricanes. There are new events to worry about, like mudslides that could stop firefighters from reaching a forest fire. Pipes are bursting in places that have never seen frost before. Skyscrapers are moving because the ground they rest on is shifting. Mountainsides are collapsing because the permafrost that holds them together is melting. Insects are destroying crops in areas where they have never survived winter before.
Climate Risk Assessments Require Data Insights
Actionable data on physical climate risk can be challenging to acquire and to apply. Global supply chains are typically composed mostly of private companies, but many physical climate data solutions currently available tend to focus on public companies. While coverage of risk to assets is starting to become available, it often only covers a small proportion of the total number of warehouses, data centers, manufacturing sites, and transportation hubs needed to support a global supply chain.
In addition, quantifying the likelihood that a private company will remain financially viable after experiencing a climate hazard like a wildfire or flood is especially difficult — because most currently available climate risk data solutions typically describe risk to a latitude and longitude, not risk to a specific business.
Imagine two private companies in the same industry — say, construction materials manufacturing. They’re across the street from each other in the same town. On its own, a climate model might tell you that both businesses have a moderate risk of being hit by wildfires this coming season, due to their location.
But what that model doesn’t tell you is that one company is operating out of an older wooden structure and is on financially weak legs. Across the street, the other business is operating out of a brick building with a metal roof and is more financially sound.
Actionable insights would indicate that one business may permanently close after a wildfire. On the other hand, the other business may quickly recover and resume delivering products once the danger has passed.
Case Study: How to Leverage Climate Risk Data to Avoid Supply Chain Disruption
To illustrate this, say the Chief Procurement Officer for a heavy equipment manufacturer has learned from the global pandemic that supply chain disruption is no longer a hypothetical — it’s the new normal. Similar causes of disruption, like physical climate risk, are now a higher priority.
If she could understand the risk to her critical suppliers — most of which are private companies — she could engage those suppliers to assess their mitigation plans or explore alternatives. With better tools becoming available, she is able to better assess her risk under different scenarios and build a more resilient supply chain. Comprehensive data and insights can help her make these decisions, so her company can continue to fulfill orders for their products and the parts to maintain them.
How Dun & Bradstreet Can Help
Dun & Bradstreet, a leading global provider of business decisioning data and analytics, has partnered with Climate Engine on a new solution for physical climate risk. D&B Climate Risk Insights leverages the computing power of Google Cloud Platform to achieve unprecedented magnitudes of scale and refresh frequency.
With D&B Climate Risk Insights, companies can tackle the risks of climate-related disasters to mitigate operational delays and disruption. Come talk to us — we are your partners in your path to resiliency.