To Find the Climate Threats to Your Business, FM Global’s Pentti Tofte Says Look to Your Data

By: | November 29, 2022

Pentti Tofte is the Staff Senior Vice President, Head of Data Analytics at FM Global. He can be reached at [email protected].

How exactly is the changing climate threatening your business?

That’s a big, unwieldy question indeed, and one many companies should consider in their ESG (environmental, social and governance) efforts.

Increasingly, climate change is becoming a pervasive business risk that is perilous to ignore. Flood, drought, wildfire, severe windstorms and other anomalous weather effects will likely jeopardize most every organization in time, whether directly or indirectly.

Building climate resilience responsibly is critical to long-term prosperity and peace of mind.

The ideal person to document all of the climate risks for an organization would be a combination climate scientist, statistician, accountant, risk manager, structural engineer, business expert and psychologist.

Absent that candidate dropping into your office, you’ll have to find other ways to determine what impact the changing climate could have on your properties, operations and future.

Fortunately, climate-related risk can be assessed with a combination of readily available public data and other information you can capture or find on your own.

You can combine this data to make better-informed decisions about your climate risk as you consider where to invest capital for improved property resilience, how to bolster your supply chain, where to cultivate your next big target market, which facilities to consider retiring, where to build your next facility, and how to design it to ensure a resilient tomorrow.

Let’s take a data-driven approach to this challenge: Start with macro-level climate-relevant data, then apply a more granular lens to evaluate your offices or plants. Optimize and customize this climate-risk model as you see fit.

Global Data

First, compare climate risk across geographies.

You can find data on how countries around the world rank on a range of risk factors, including climate risk exposure and climate risk quality. Data is also available on such topics as urbanization rates and infrastructure quality.

Supply chain resilience assessments can help organizations further understand their risk during any potential disruptions, including climate-driven ones.

Data like this is available in analytical tools like the FM Global Resilience Index, which ranks the relative resilience of the business environments of nearly 130 countries and territories, enabling you to compare and contrast such data for different regions where a company might locate a plant or where a supplier operates.

Some of the index’s source data is proprietary, and other data comes from entities like the World Economic Forum and the United Nations.

Regional and Local

Natural hazard maps are a good source of more localized, granular climate risk data.

FM Global’s interactive flood map, for example, identifies areas of moderate and high-hazard flooding at a resolution of 90 meters by 90 meters, helping companies grapple with the costliest natural hazard in the world.

Make sure your source isn’t based entirely on historical flood data because greenhouse gases are changing historical patterns.

Our flood map is derived from physically based hydrology and hydraulic scientific data, which accounts for variable external factors such as rainfall, evaporation, snowmelt, and terrain.

Your Facilities

Going one step deeper, you’ll want to procure engineering data about your own properties to assess their vulnerability to climate risk (and many other risks).

Skilled loss prevention engineers can assess your property and, using their data from hundreds of thousands of such assessments, benchmark your climate risk against comparable facilities.

Your engineer should be using predictive analytics technology to determine which of your properties are most predisposed to a significant loss and the relative likelihood that a given exposure will actually result in a loss.

FM Global’s engineers have found that climate-related losses at commercial properties with the worst calculated climate risk are 30 times more likely to occur and be 180 times more severe than at properties with the highest climate resilience.

Your Books

Finally, you can use your accounting data to predict the total financial cost of your most likely climate-driven business disruptions.

When I say “total financial cost,” I’m not talking only about property damage and short-term business interruption. In many cases, the costly after-effects from a disruption to your business dwarfs the insurable portion of the loss.

The most notable after-effect is the loss of market share (not covered by insurance). When production lines are down for an extended period of time, customers are unable to buy those products, and market share may be lost for the long term. Growth opportunities based on those (now lost) customers are therefore forever stunted.

And perhaps the most haunting repercussion is the loss of investor confidence and potential ensuing stock price decline; research shows that could be a long-term problem. These after-effects represent a financial loss that would outstrip even the best insurance.

On the other hand, if you have improved your climate resilience, your outlook is brighter.

Now that you’ve looked at the big picture, your supply chain, your property and your books, you have a plethora of data to inform your climate resilience. And while no one knows exactly how the climate will affect the world in 2030, 2050 or beyond, making smart decisions guided by data, research, and engineering details will help you ensure a more resilient and prosperous future. &

More from Risk & Insurance