How can climate change impact business operations?

How can climate change impact business operations?

Climate change can impact business operations in many different ways. Impacts from physical hazards can be categorized into two main groups - acute and chronic.

Acute impacts are caused by discrete events like a flood, hurricane, or wildfire. Acute impacts include direct physical damages to the asset as well as downtime. This is the amount of time that the business’s operations are interrupted due to an acute event.

Chronic impacts are from conditions that persist over time. For example, increased temperatures during the summer months or reduced annual water supply.  Chronic impacts include things like increased utility costs. For example, increased heat leads to higher air conditioning costs. Reduced water supply could lead to higher water costs. Another chronic impact is productivity loss. For example, in hotter temperatures workers are less efficient and have to take more breaks.

Losses from each of these types of impacts will impact a business’s finances differently. Physical damage and downtime from acute events: is generally covered by business insurance, but increased risk of damage leads to increased insurance premiums. This could potentially lead to uninsurability in the future if the risk becomes too high for insurers to cover. Chronic impacts are generally not covered by insurance and result in direct increases to a business’s operating expenditure when they occur.