Why CEOs Need to Address Climate Risk

What would you do if your business's financial health depended on the weather? That’s not just a hypothetical. Increasingly, climate risks are reshaping how lenders assess the creditworthiness of businesses. Here’s why that matters and what it could mean for your bottom line. Let’s start with a simple truth: Not all loans are created equal. Loans backed by physical assets like commercial real estate tend to have higher recovery rates in case of default. Why? Because there’s a tangible asset something with value to recover, compare that to unsecured loans, where lenders are often left empty-handed if things go south. Now, Layer climate risk onto this equation. Imagine A factory located in a region prone to floods or hurricanes. The more vulnerable the location, the greater the risk that the physical asset could be damaged or even wiped out by extreme weather. That could significantly lower the recovery rate for lenders, turning what might have been a manageable risk into a major financial headache. This is where ESG (Environmental, Social, and Governance) maturity comes into play. Companies with robust climate risk strategies those proactively safeguarding their operations and assets are better positioned to weather the storm. But here’s the kicker: those that aren’t? They might face higher borrowing costs or even find themselves cut off from certain financial institutions altogether. According to the Global Risk Report 2024, climate-related risks are now among the top global risks over the next decade. And in finance, these risks translate directly into higher LGD (Loss Given Default) estimates. For borrowers, this means two things: 1) You’ll pay more to access capital if your ESG profile isn’t up to scratch, 2) You might need to rethink your climate strategy not just for the planet, but for your financial survival. From my perspective, this isn’t just about risk mitigation. It’s about staying competitive in an evolving market. Financial institutions are becoming more selective, and businesses need to adapt. By improving ESG maturity, companies can not only secure better loan terms but also position themselves as resilient players in a world where climate risk is no longer a distant threat but a present reality. The bottom line? Climate risk isn’t just an environmental issue it’s a business issue. And how you respond could make all the difference. What steps is your business taking to adapt to this new financial landscape? Let’s discuss this in the comments. ⬇️

After 15 years in climate strategy, I've found the one thing that makes every executive care about climate risk: their insurance bill. For years, I focused on energy costs in commercial real estate. 𝗧𝗵𝗲 𝗲𝗻𝗲𝗿𝗴𝘆 𝗽𝗶𝘁𝗰𝗵 𝘄𝗼𝗿𝗸𝗲𝗱... 𝘀𝗼𝗿𝘁 𝗼𝗳: → Rising energy costs motivate building owners → Energy efficiency = cost savings + emissions reductions → Win-win for sustainability, right? 𝗕𝘂𝘁 𝗵𝗲𝗿𝗲'𝘀 𝘁𝗵𝗲 𝗽𝗿𝗼𝗯𝗹𝗲𝗺: What about building owners who don't pay the energy bills? If tenants handle utilities, energy costs don't motivate the people making the building decisions. 𝗘𝗻𝘁𝗲𝗿 𝗶𝗻𝘀𝘂𝗿𝗮𝗻𝗰𝗲 𝗰𝗼𝘀𝘁𝘀. Insurance affects 𝗲𝘃𝗲𝗿𝘆𝗼𝗻𝗲 in commercial real estate. Owners, investors, lenders, tenants—nobody escapes rising premiums. And insurance costs are skyrocketing because of climate risk. 𝗛𝗲𝗿𝗲'𝘀 𝘄𝗵𝗮𝘁'𝘀 𝗵𝗮𝗽𝗽𝗲𝗻𝗶𝗻𝗴: → Wildfire-prone areas seeing 300%+ premium increases → Coastal properties becoming "uninsurable" → Flood zones expanding beyond traditional maps → Insurers pulling out of entire states 𝗧𝗵𝗲 𝗯𝗲𝗮𝘂𝘁𝗶𝗳𝘂𝗹 𝗽𝗮𝗿𝘁? Insurance companies are rapidly incorporating climate risk into their pricing models. They can't afford to ignore it like other industries can. When your building's insurance premium triples, climate change suddenly becomes very real, very fast. 𝗧𝗵𝗶𝘀 𝗰𝗵𝗮𝗻𝗴𝗲𝘀 𝘁𝗵𝗲 𝗰𝗼𝗻𝘃𝗲𝗿𝘀𝗮𝘁𝗶𝗼𝗻 𝗲𝗻𝘁𝗶𝗿𝗲𝗹𝘆: Instead of: "You should reduce emissions because it's the right thing to do." Now it's: "You need to reduce climate risk because your insurance company is about to drop you." One is a moral argument. The other is financial survival. 𝗧𝗵𝗶𝘀 𝘀𝗮𝗺𝗲 𝗽𝗿𝗶𝗻𝗰𝗶𝗽𝗹𝗲 𝗮𝗽𝗽𝗹𝗶𝗲𝘀 𝗯𝗲𝘆𝗼𝗻𝗱 𝗿𝗲𝗮𝗹 𝗲𝘀𝘁𝗮𝘁𝗲: Find the universal cost that climate change affects in any industry. Healthcare? Workforce productivity during extreme heat. Manufacturing? Supply chain insurance. Tech? Data center cooling costs. 𝗧𝗵𝗲 𝗿𝗲𝘀𝘂𝗹𝘁: I'm seeing building owners invest in resilience retrofits, flood barriers, fire-resistant materials, and backup power systems—not for sustainability points, but because their insurance depends on it. Climate action driven by insurance requirements could be one of the fastest paths to widespread adaptation we have. What climate risks is insurance pricing into your industry? I'd love to share what I'm seeing across different sectors. __________________________________________________________________ Follow me, 𝗦𝗼𝘁𝗶𝗿𝗶𝗮, for insights on the business drivers of climate action. #ClimateRisk #Insurance #CommercialRealEstate #ClimateAdaptation #Sustainability #RiskManagement

I travel the world for work, and I often receive the question, ‘How could XYZ happen in the United States?' The answer is simple. Very few places in the world, including the world’s largest economy, are prepared to adapt to a world in which climate disasters are increasing in frequency and severity. We must stop treating climate risk as a future possibility. The UK's Office for Budget Responsibility warns that the economic damage from climate-related disasters could raise public borrowing by 2% of GDP within a generation, nearly 30% higher than previously estimated. And, according to the Global Risks Report from the World Economic Forum, extreme weather events are anticipated to become even more of a concern than they already are with the risk being top-ranked in the 10-year risk list. Unfortunately, here in the U.S., and in various other communities around the world, we’re seeing it unfold in real time with rising damage, disruption, and suffering. The reality is clear. The costs of inaction far outweigh the investments required to build resilience and accelerate decarbonization. The floods devastating communities in Texas and New Mexico are a painful reminder that the climate crisis is not a distant threat, it’s here, and it’s costing lives. We urgently need to prepare for a future shaped by climate extremes. That starts with acknowledging the risks, making smarter choices now, and leading with courage. https://lnkd.in/gmeG78H2 #ClimateRisk #ClimateFinance #Sustainability

"Who really owns climate risk?” This question has been top of mind, especially after recent conversations with clients, during New York Climate Week 2024, and in other executive forums. There’s a growing recognition that climate risk is no longer just an environmental or compliance issue; it’s a business imperative that touches every corner of operations, strategy and continuity. Having the opportunity to connect with peers from around the world and hear their insights on how their organizations are grappling with the realities of climate change, there is one recurring theme: while many acknowledge the risks, too few are truly owning and actively planning with it in mind. In my experience, organizations that succeed are the ones that make resilience a core part of their strategy - taking action to mitigate the risks around climate impacts (with a systems approach and focusing on the full supply chain) will become a competitive advantage. Those who wait, thinking someone else will take the lead, will find themselves vulnerable when the next extreme weather event, flood, or heatwave hits. I recently explored this issue in more depth in my latest piece. If climate risk isn’t already a top priority in your organization, now is the time to act. If you don’t know where to start, Arcadis has an experienced team who can help you find the best path forward connected with your unique challenges and ambitions… The future belongs to those who embrace this challenge and lead with bold, proactive decisions. Take a look at my thoughts and I’m curious to connect, where is your company on this journey and are there critical questions you are contemplating? Reach out ... https://lnkd.in/eKH5eDGq #ClimateRisk #Sustainability #ClimateAction #NYClimateWeek