Nick Faull
Head of Climate & Sustainability Risk, Marsh
To better manage your operations and people, you need to understand how chronic and acute physical risk events affect your processes and your workforce. We can then look to a range of financial, strategic, and planning measures to reduce the impact of these on your business. For example, inspection regimes may need to change in different climates and your people may need to change the way they work.
Our global risk engineering teams, together with Mercer, a Marsh McLennan business are leading specialists in people and health risk.
We can arrange insurance solutions to compensate your employees in the event they are impacted by extreme weather, or to compensate your business for interruption in operations. Our Advisory Workforce Strategies team can help with workplace and job assessments, offer support with meeting regulatory requirements, and build risk management strategies to address workplace safety challenges.
Workers exposed to extreme heat, both outdoors and indoors, face health dangers such as heat stroke and heat exhaustion. 50% of the Indian population suffered heat-induced ailments after India’s heatwave in 2022 (source: Marsh McLennan).
Extreme heat also causes chronic fatigue, which increases the likelihood of errors, and can be particularly dangerous in certain occupations.
Prudent businesses have plans in place for how to respond to a range of emergencies. However, will those plans still work in a changed climate? For example, will you still have water available to tackle a fire during a drought, and could emergency services reach you in a flood?
Our risk engineers and business continuity specialists can help you plan your emergency response across a range of scenarios to reduce the severity of an event
Firefighters lacked water to put out the wildfires that ravaged Maui last year due to extreme environmental conditions and a system collapse. Authorities were forced to resort to people evacuations, leaving whole communities destroyed. (source: The New York Times)
Just as your upstream suppliers can be disrupted by climate change, so too can your downstream customers, affecting their purchasing habits.
Marsh can identify and assess the physical risk exposure of your key customers to reduce the impacts of climate risk on your overall business revenue.
Disruptive physical impacts can lead to shifts in demand from customers. Sectors that often bear the brunt of this include oil and gas, real estate, retail, automotive and transport, power generation, and agriculture.
The infrastructure that your business relies upon can be easily impacted by climate change events, especially given that damage to a single bridge, highway, railway, or port can bring the entire chain of connectivity to a halt.
Marsh can work with you to understand key points of dependency and their potential disruptions from climate change in order to develop contingency plans.
When extreme droughts and heatwaves hit the Rhine River in Germany in 2018, resulting disruptions to shipping traffic forced cuts to production for chemical manufacturer BASF and steel producer ThyssenKrupp. Estimates suggest a 0.5% decrease in Germany’s GDP due to resulting supply disruptions (source: Marsh McLennan).
The resources and ecosystem services that your business depends on and derives value from can be critically impacted by climate events. Heatwaves and droughts can create severe water shortages that impede business operations, for example, and the availability of agricultural inputs can be affected. Businesses need to understand their dependencies and impacts on the natural environment so that adaptation solutions consider these elements.
Marsh works directly with businesses to implement robust enterprise risk management strategies, including pollution prevention and avoidance, for example, to protect their balance sheets from activities that harm nature.
Marsh can identify potential impacts of climate change on your business strategy, such as resource availability or whether the provenance of key materials will be viable in the future (for example, will you be able to claim that something is made with 100% Italian ingredients?).
Taiwan’s electronics industry was badly disrupted after extreme heatwaves and drought hit in 2021. One large contract chipmaker spent over US$26 million on additional water trucks amidst drought conditions. Uncertainty around water supply has motivated several chip companies to leave Taiwan permanently (source: Marsh McLennan).
As climate change impacts worsen, governments and regulators may impose increasingly onerous requirements on businesses to report and reverse the impacts of climate change. Complying properly with these requirements can help your business demonstrate your commitments to key stakeholders and establish you as a preferred business to engage with.
Marsh can work with you to understand which factors are important for your business, ranging from changing disclosure requirements (adaptation is increasingly in focus, and physical risks are already part of the Task Force on Climate-related Financial Disclosures (TCFD) recommendations) to new policies (planning restrictions, legal liabilities), ensuring appropriate measures are taken so that you and your business are prepared.
More than 170 countries have national policies on adaptation to manage the risks of climate change impacts (source: The London School of Economics and Political Science).
The communities your business operates within (and that your employees are part of) may be significantly impacted by climate change events. It is important to understand how your business could be affected and to play an active role in adaptation for the broader community.
Marsh’s adaptation and resilience recommendations keep communities in mind at every stage. One example is community-based catastrophe insurance (CBCI), which demonstrates how new flood insurance solutions can be designed to create risk-reduction incentives at community level.
The danger of flooding will be particularly severe in coastal areas, with many shoreline communities already facing an existential threat. By 2050, 570 coastal cities with a total population of more than 800 million people are expected to be impacted by sea level rise (source: Marsh McLennan).
Your capital providers (including insurers) are not immune to physical risks. The impact of climate change on their own businesses, and their regulatory and reporting requirements, may have knock-on impacts on your business.
Marsh can help ensure you are best positioned to meet capital provider expectations. For example, we can mobilise your organisation’s financial capital for flood resilience by standardising co-benefit assessments and integrating them into environmental, social, and governance (ESG) and green finance frameworks. This also can be incentivised by strengthening the role of resilience ratings in awarding public and private contracts.
The more exposed your business is to perceived risks, the higher your insurance premiums are likely to be. Commercial wildfire premiums jumped 300% in California between 2018 and 2021 (source: Marsh McLennan).
The client develops or invests in industrial, office, residential, and retail sites globally.
The client needed to understand its climate risk in a particularly exposed region of the world to inform its divestment strategy, insurance program, and disclosure requirements.
The client is a critical part of national (and international) climate action plans through operating one of the largest solar parks in the world.
The client needed to understand its physical risk exposure to ensure operational continuity and thereby meet its energy production commitments.
Learn more about our work with this client here.
The client is an international food producer.
The client needed to understand the short- and long-term yield risks for its key crop exposures from its suppliers.
The client develops tower infrastructure solutions for operators in the Southeast Asian market.
The client needed to understand the vulnerabilities of several of its critical infrastructure assets.
As an Insurance Buyer, Risk Manager or Head of Sustainability, you may already be implementing adaptation measures, however, there may be opportunities to expand your existing processes into a more holistic strategy.
Some examples of things you could be doing if not doing already:
Sustainability officers typically have responsibility for target-setting and reporting, however, implementing a holistic business strategy plan often involves the whole organisation, particularly when it comes to adaptation;