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Firms Underprepared for Climate-Related Financial Risks

June 26, 2020

Although the pandemic dominates the world’s attention, climate risk is simmering in the background, with more than 3 in 4 (77%) CEOs and CFOs of the largest companies in the world admitting their firms are not fully prepared for the adverse financial impact of a changing climate. Moreover, 8 out of 10 (82%) believe their companies have somewhat to no control over such an impact on their business.

The findings stem from a global survey of several hundred CEOs and CFOs at companies with US$1 billion or more in revenue across a wide variety of industries in North America, Europe and Asia Pacific. The research was commissioned by FM Global, one of the world’s largest commercial property insurers, and conducted by ENGINE Insights, a leading market research and analytics firm.

Three-quarters of respondents (76%) said their organizations are somewhat to significantly exposed to climate risk. Floods, droughts and wildland fires topped the list as the three exposures that “concern their companies the most” and “could most negatively affect their financials.”

“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,” said Katherine Klosowski, vice president, manager of natural hazards and structures, FM Global.

“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,” added Klosowski.

The survey results build upon the World Economic Forum’s report from earlier this year, released just before the pandemic struck, that declared extreme weather events plus failure of climate change mitigation and adaptation as top risks over the next 10 years.

“Fortunately, most losses stemming from climate-related events are preventable, and loss prevention can help preserve a company’s value and resilience, especially during the pandemic,” said Klosowski. “However, the challenge many companies will face is adequately preparing for such events if stay-at-home orders remain in place, which could exacerbate the impact climate-related events have on an already fragile bottom line.”

Methodology
The research is based on an online survey conducted in February 2020 of 150 CEOs and 151 CFOs equally across three regions (North America, Europe and Asia Pacific). Respondents lead companies over US$1 billion or more in revenue across a wide variety of industries. One-third of respondents lead companies of US$5 billion or more.

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