A new report by Oxford Economics has found that climate risks in supply chains are often overlooked and can harm businesses' financial outcomes.
What are indirect climate risks impacting the finance sector?
Complex supply chains are vulnerable to the impacts of the shifting climate, and the risks can negatively impact companies' financial performance.
"The market is aware of climate change risks and is gradually getting better at assessing them," Oxford Economics said in a March research briefing, per the Accounting Times.
The paper found that climate dangers hidden in supply chains could have the largest effect on the finance sector.
Oxford predicted that companies with strategic climate risk management plans would have better chances of attracting capital as awareness grows in financial markets about the threats of the changing climate.
Climate risks have already impacted companies' value, highlighting the importance of mitigating risks throughout a company's supply chain.
"That large-scale climate-related disruptions will continue to occur is both inevitable and foreseeable. However, their expected effect on supply chains is measurable, at least in broad terms. This implies that proactive management can, to an extent, mitigate these disruptions," Oxford Economics said.
Why should you care about the financial costs of climate risks?
This is yet another example of how the changing climate has far-reaching consequences. While mitigating climate impacts can be expensive, it's much costlier to avoid doing anything, as that would lead to destruction on a massive scale.
As the Accounting Times reported, economists have noted that the warming planet will likely cause many climate shocks worldwide as the effects intensify.
"The problem of severe climate change in the future is that it's going to be a global weather shock," climate change economist Dr. Timothy Neal said. "That is when you could have major supply chain disruption."
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Big time 👍 If supply chains are majorly impacted, it could be devastating for businesses worldwide because of the interconnected nature of the global economy. And that could have a domino effect on many aspects of life, from businesses to consumers.
What's being done to protect supply chains from the climate?
Walmart has turned to artificial intelligence-based solutions to identify sustainability risks to its produce supply, and farmers around the world are using advanced meteorological models to better anticipate sudden changes in weather. As more businesses adopt AI and other technologies to improve forecasting, it will benefit the financial sector and reduce risks of climate shocks.
Consumers can help by switching to electric appliances that reduce pollution levels and the impacts of the changing climate. But even small changes like unplugging energy vampires and upgrading to LED lightbulbs can make a difference.
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