Climate change has become an immediate operational concern for businesses worldwide, with extreme weather events increasingly disrupting industries and supply chains. As regulatory frameworks evolve and environmental, social and governance (ESG) requirements tighten, companies are under pressure to identify, assess and manage climate-related risks that can affect their financial stability and long-term viability.
In this context, Tom Sabbatelli-Goodyer, vice president, Climate Risk, Solutions Management at FIS Global, outlined the challenges and approaches facing organisations as they adapt to a new climate reality.
Climate change is now a visible force in business risk, pointing to recent wildfires in southern California that outpaced traditional mitigation efforts. He also noted the shortening off-seasons for hurricanes and the year-round occurrence of floods.
“Climate change is in the hurricanes that are knowing shorter and shorter off seasons. ‘Boil the ocean’ is now as much a literal term as it is an idiom confined to business contexts. And climate change is in the rising tide of floods that strike year-round,” Sabbatelli-Goodyer said.
He observed that no region or sector is immune from the effects of global warming. Businesses, he said, are not insulated from its unpredictable reach.
“The present business-as-usual approach is not only outdated; it’s also unsustainable. Instead, to survive and grow, these firms will need to pivot to active climate risk management,” he said.
He explained that the first step for corporations is to identify the extreme weather risks that impact their specific organisations. He acknowledged that this process is unfamiliar and potentially daunting for many. “Climate risk modelling allows corporations to determine their present exposures and offers a glimpse into what risks they may face in the future, so they can plan accordingly. Everything hinges on the ability to grasp complex scientific principles and transform them into workable models that can assess the financial impact that extreme climate events can have on short and long-term operations,” he said.
He elaborated on the two main categories of climate risk that companies must consider. According to Sabbatelli-Goodyer, transition risks are related to the move towards a low-carbon economy and include policy and legal, technology, market, and reputational factors. “Climate risk modelling covers the ‘transition risks’ corresponding to firms’ evolution to a more low-carbon economy and ‘physical risks’ resulting from extreme weather events,” he said.
He also pointed to the increasing regulatory pressure on public companies to comply with new ESG reporting requirements. Unusual weather patterns are rapidly becoming the norm, and public companies are facing mounting pressure across the globe to comply with new ESG regulatory reporting requirements on their financial risks. “Locating the correct data can be tricky. If this is you, you’re not alone. According to a recent survey, over half of today’s business leaders have difficulty understanding ESG reporting standards,” he said.
He noted that the process of gathering and compiling this data is not just about compliance. Sabbatelli-Goodyer said these statistics can be repurposed to provide insight on the potential financial impact of climate risks, including effects on supply chains and facilities.
“Corporations can then use these analytics to become more environmentally sustainable and develop strategies to reduce their exposure to extreme weather. This may include protecting buildings by upgrading to more storm-resistant materials, incorporating extra flood protection at the design phase or relocating sites away from high-risk areas,” he said.
Sabbatelli-Goodyer believes that although catastrophic climate events cannot always be predicted, anticipating them can help mitigate their effects. He urged companies to act proactively by undertaking climate risk modelling, describing it as a proven business management tool. “Acting proactively by undertaking climate risk modelling could save your business. So, consider prioritising this proven business-management tool before it’s too late. Your company’s fate could be as close as the next wildfire, hurricane or flood,” he said.
He acknowledged the complexity of modelling physical risks, noting that it requires expertise in climate science and risk management technology. Sabbatelli-Goodyer said few firms have the time, skills or resources to develop these capabilities internally.
To address this gap, he recommends outsourcing as a practical solution. He said companies can engage providers offering SaaS-based solutions and services that can manage data efficiently. “Outsourcing their modelling projects to providers that possess SaaS-based solutions and services capable of quickly managing and computing data can satisfy compliance requirements and estimate the financial risks of climate change,” Sabbatelli-Goodyer said.
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