Global CEOs and CFOs see climate change risks but feel unprepared to handle them, survey finds

Even as the world copes with the coronavirus disruption, businesses must prepare for the adverse effects of continuing climate change risks. CEOs and CFOs across the world are aware of the risks that come from natural disasters, but few are prepared for the financial impacts, according to the 2020 CEO/CFO Climate Risk Survey from the insurer FM Global.

FM Global is a mutual insurance company that works with clients to alleviate, maneuver and predict risks. Engine Insights, a marketing and research analytics firm, helped FM Global to create an online survey in February that revealed companies' relationships with climate hazards. The organization recruited 150 CEOs and 151 CFOs at the largest companies in the world to participate in the study.

Survey respondents worked at leading companies making over $1 billion in revenue that represent regions equally across North America, Europe and Asia Pacific. These companies see high ROIs and should be taking action to preserve their hard work. The coronavirus pandemic contributed to negatively impacting funds and highlighting the ways natural disasters can affect businesses.

CEOs and CFOs determined flooding, droughts and wildfires wreak the most financial havoc. The study found that while 76% of the CEOs and CFOs find their company at risk for a climate change disaster, nearly 80% of them are unprepared.

“The combination of being underprepared for natural catastrophes, volatility in financial markets, and the threat of an economic recession couldn’t come at a worse time for many companies,” said Katherine Klosowski, an expert in natural disasters and climate risk at FM Global.

As the coronavirus pandemic shed light on many market issues, businesses must stay on top of all current and future problems. For 86% of CEOs and CFOs, climate change remains a medium to high priority risk. Many companies have allocated resources to circumvent the risks from climate change.

“The findings are concerning as hurricane and wildfire seasons begin in the U.S. and the threat of flood is on the rise globally, combined with the challenges the pandemic has placed on businesses — many of which are fighting to survive and recover,” Klosowski said.

These developments provide an opportunity for companies to become more aware of areas they can improve in. It also may be comforting for firms to know they are not alone in struggling to combat mother nature. It is crucial that companies stay prepared as climate change becomes a more pressing issue.

Other unexpected changes, like the COVID-19 pandemic, threatens companies as well. The consulting firm Kearney reported on the recent impacts of the coronavirus on market investors on an international scale.

“COVID-19 had become a pandemic that dampened investor confidence across the board,” the Kearney report said.

In conjunction with the pandemic, climate change remains a pressing issue. Many expect stronger climate regulations to be put in place in the coming years and “more than half of investors expect financial losses as a result of climate change,” according to the Kearney report.

This does not bode well for companies seeking financial backing. As determined by the FM Global survey, companies are not prepared for the financial impacts of climate change, and investors may be more hesitant.

Fortunately, as the world becomes climate conscious, there will be steps made to alleviate some climate pressures. Companies have found alternatives to fossil fuels produced by gas cars by using electrically powered vehicles. Additionally, some have begun to use solar power for energy.

These are just the beginnings of the technological innovations that will become more institutionalized. If the world can slow down climate change, the impending need to have high financial access against natural disasters could alleviate company stress.

However, the findings from the FM Global study suggest that the majority of CEOs and CFOs are not prepared for the financial ramifications resulting from the changing climate.

“Though the loss of revenue might be insured during a business interruption, longer-term market share, shareholder value, reputation and investor confidence will not be,” the study concluded. “If anyone wins in a catastrophe, it is companies that choose to see loss as preventable, not inevitable, and invest in preserving their company’s value through resilience.”

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