How can businesses build the investment case for climate resilience?

As UK homes and businesses count the costs of heavy rainfall and storms that have caused damaging floods up and down the country this month, it further underscores just how rapidly climate risks are intensifying - and how deeply ill-prepared the nation is for their worsening impacts.

Indeed, the government's own climate advisors have warned the UK remains woefully underprepared for the likes of flooding, drought, and heatwaves that are only set to increase in frequency and intensity while becoming ever more unpredictable in the coming years as global average temperatures continue rising.

Yet the impacts are already severe today. Recent analysis has estimated the physical impacts of climate change cost the global economy at least $1.4tr in 2024, having risen as much as 10-fold since the turn of the century, while in the UK alone insurers are estimated to have paid out a record £585m for weather-related damage during the same year.

And last week's decision by a South Wales council to spend £2.6m on buying and demolishing 16 houses that can no longer be protected from flooding offers a further stark example of the worsening costs and threats posed by the climate crisis in the UK, with the 40-or-so displaced residents described as the country's first "climate evacuees".

In order to prevent further homes, infrastructure, businesses from suffering similar fates - with knock on negative impacts for public health and the wider economy - the case for bolstering the resilience and adaptation to the new climate reality is clearer than ever.

Against that backdrop, BusinessGreen gathered a host of leading risk and resilience experts to explore both how companies can better understand the impacts they and their supply chains are facing, and how they can build the case for timely investment in adaptation and resilience efforts.

Hosted in association with Equans UK & Ireland, the webinar - Spotlight on Resilience: How to map your climate risks and build resilience - also explored the challenges and opportunities businesses face as they work to enhance resilience in the face of escalating climate risks.

Climate risk and resilience is rising up the corporate agenda

Driven in part by investor and regulatory pressure - most notably through expanding requirements to disclose climate and nature risk through in line with TCFD and TNFD guidelines, respectively - UK businesses arguably have more data and analysis detailing the associated threats they face to their supply chain bottom line than ever.

Speaking during the event, Josie Narramore, climate risk and adaptation lead at Equans UK & Ireland, argued that greater visibility of the impacts of climate change on top of firms having a stronger grasp of their potential exposure and financial losses had been helping to drive interest in climate resilience up the corporate agenda in more recent years.

"There's more of a shift from reactive risk management towards more proactive risk management to avoid unnecessary costs that were maybe once unforeseen," she explained.

It was a view echoed during the webinar by Felicity Alvey, programme director for the ClimateWise insurance industry leadership group at the the Cambridge Institute for Sustainability Leadership (CISL), who said that insurers were increasingly feeling the early and acute impacts from increasingly extreme weather. She highlighted a recent report from WWF, which found insurers are already facing higher costs, leading to soaring premiums, restrictions in coverage, and the withdrawal of cover from high-risk areas. It estimated that the average cost of home insurance in the UK rose by 19 per cent between 2023 and 2024.

Such data points to a worsening picture for climate risk that urgently needs to be addressed right across the UK economy, said Alvey. 

"Insurance is often described as the canary in the coal mine," she said. "As physical climate impacts continue to intensify, there is a growing risk that insurers are forced to withdraw from certain markets because the underlying economics no longer stack up."

Why is climate and nature risk so hard to quantify?

Yet for Laurie Laybourn, executive director of the Strategic Climate Risks Initiative (SCRI) think tank, many emerging and evolving climate risks are hard to put a finger on due to the myriad complex ways in which they can impact a business. For one thing, while the likes of heat waves and floods are considered first order climate impacts, they can be followed by "domino effect" of second, third and fourth order impacts – or "cascading risks" - he pointed out during the webinar.

"It's not just the immediate impact of a storm or a heat wave, it's the knock-on consequences, say, for crop growing and then from there to wider economic activity to social and political life," he said. "You can use analysis to quantify certain elements – the potential for extreme heat to lead to destruction of harvest, leading to impacts on food supply chains, on food prices and so on – but there are limitations."

Businesses are increasingly realising that the best way of measuring such risks is to use a blend of quantitative and qualitative analysis to guide their decision making, but there are challenges here, too, according to Laybourn.

"As a risk assessor, you're obsessed with the opposite - a false negative," he said. "You don't want to fail to predict something that then does come true".

Laybourn said there was a tendency for some analytical approaches to "under-include" data, whereas risk assessors want to weigh up everything and anything that could become serious. "Unfortunately, we are in the literal and figurative storm of climate risk, and some of the things that have been under-included in the past are now actually happening to us," he added. "We need to develop the right culture and analytical processes so we can navigate the new conditions we find ourselves in."

So, while companies may now have more access to more data than ever, it doesn't necessarily make risk and resilience any easier to quantify.

Moreover, as Alvey pointed out, climate risk analysis is by necessity built on a "shifting baseline".

"Climate risk is non-stationary," she said. "Models that we've relied on in the past are starting to not be as good predictors of the future. You add into that the fact that climate impacts are becoming more frequent and more severe, that creates a very challenging dynamic in the system."

How can firms start taking stock?

While climate risk and resilience are huge topics that can feel "overwhelming" for companies and sustainability executives embarking on their climate risk and resilience journey, it is crucial to establish a "holistic view" by gathering a broad range of perspectives, according to Narramore.

She argued it was therefore important to map physical risk, transition risk, and climate opportunities, and to also approach them in a similar way to other business risks.

For larger, or multifaceted organisations, Narramore suggested starting with a smaller subset of assets – whether that's buildings, critical service lines, regions, assets, or operations – before increasing the ocus area incrementally.

"I think if you're just getting started, it's helpful to bring quantitative data to illustrate how risks might manifest for your organisation," Narramore said.  

Also speaking during the webinar was Emma Howard Boyd, who as co-chair of Climate Resilience for All, chair of environmental law NGO ClientEarth, and the leader of the London Climate Resilience Review, holds vast amounts of experience in assessing climate risk and pushing for greater resilience. She said it was crucial for businesses to take an outward look at the systems in which assets sit – and who they affect.

"A city will be different from an organisation, but very quickly you can see that if you make a building resilient to flooding, it is no good if no one can get there, or no one can get away from it, or indeed if the utilities that are supplying it are under water," she said. "You've got to understand the links with the rest of the economy."

Alvey added that insurance is one of the most powerful signals for making climate risk real and tangible for both businesses and for policy makers. As risks continue to increase, that signal manifests in pricing premiums, higher deductibles, tighter terms and exclusions – and ultimately assets becoming uninsurable. "Insurability is often that earliest market signal of whether assets or sectors or even entire regions can continue to operate under accelerating physical climate risk – and crucially, at what cost," she said. "We need to be listening to that signal."

Crucially, Narramore stressed that while many existing data models and solutions are useful for stress testing an organisation, the key to creating company-specific outlooks on risk is combining different and often disparate sources of data. These can range from granular building, asset or site level assessments to national or regional climate datasets and adaptation plans, for example. "We combine all of that to get us something closer to what we need to then design the right solution," she said. "We have to get to a point where we can take action on that data."

Building 'hard numbers' into a business case

Once a business has a firm handle on the risks that lie ahead, it is then essential to act swiftly and develop robust delivery plans, according to Emma Howard Boyd.

"I think it is there that you start understanding the role that you can play to try and make your business secure," she said. "Not just in terms of the services it's providing, but where it sits within society and the importance of getting things right from a community perspective"

Including as much detail as possible on the potential climate impacts on productivity and finance can form the foundations of a strong business case for further adaptation investment. And for Alvey, illustrating the idea of potentially "locking" vulnerability into a business is a really useful starting point. "One thing I find helpful conceptually is to talk in terms of something like a resilience dividend," she explained. "A very real, measurable value of losses that never happen because you built resilience. When resilience works, the return shows up as damage avoided or downtime prevented.

"There are all sorts of ways that you can demonstrate investment is paying off," she added. "You can do that qualitatively, but there is a growing body of research that helps you to be a little bit more quantitative about this. There are some hard numbers."

As an example, Alvey flagged the work of insurers Flood Re in quantifying the benefits of investing in flood resilience. "We know that every pound invested in property level flood resilience can deliver five pounds in avoided damages later on," she explained. "You can take some of those hard numbers, and you can start to build up a little bit more of a case as to why this is just sound business sense."

Still, even when armed with robust risk data, securing upfront investment and capital for resilience projects can be challenging for many firms with tight budgets or other more short-term funding priorities. Given the case for investing in measures that seem high impact but low probability can prove challenging, Narramore suggested taking less of a ‘you must step now, because it's going to happen tomorrow' tone and framing a business case  around proactive planning and implementing monitoring systems.

"We tend to start talking about appetite for risk and what is deemed acceptable," she said. "Getting into a slightly more practical conversation of what's your priority now versus what can we plan for in the future and bring into the fold, perhaps in a few years' time when that risk has evolved slightly. We look at how we monitor the assets that our clients need to look after and see how that risk might be changing beyond what some of the climate models are already suggesting."

Such an approach is far more likely to be effective if it emphasises the co-benefits of decarbonisation, adaptation and climate resilience, she added. "We really want to see how we can pair solutions together for a stronger business case," Narramore said.

Assessing climate risk and turning the resulting data into robust and investible resilience strategies is an increasingly important if hugely complex process. But in an increasingly economically, geopolitically and climatically volatile world, more and more businesses are beginning to realise that doing so is of vast strategic importance, both for today and the future.

BusinessGreen's webinar - Spotlight on Resilience: How to map your climate risks and build resilience - was hosted in association with Equans, and can be watched back in full here.