Protect Your Assets from the Impact of Climate Change

As global warming intensifies, risk managers must determine how it will impact their facilities — and their bottom lines — in the years to come. 

The past eight years were the warmest on record and 2022 was the 6th warmest ever, according to the NOAA. It’s been 46 years since Earth had a colder-than-average year. Meanwhile different economic sectors have differing levels of greenhouse gas emissions led by electricity and heat (25%), agriculture (24%) industry (21%), transportation (14%), other energy (10%), and buildings (6%). 

Risk managers must understand the financial impact global warming will have on insured assets — both now and in the future. In a speaking session at RIMS RISKWORLD 2023 in Atlanta, Ulf Bruening, Principal Consulting Lead EU/ASMEA for TÜV SÜD Global Risk Consultants explained that risk managers had better get a handle on this problem now to prevent big issues in the future. 

“Temperatures began warming consistently around 1960 when we had a population of about 3.6 billion. We now have 7.8 billion people on our planet and at the end of the century there will be 10.5 billion. Greenhouse gases from agriculture (cattle etc.) will be a driving factor for global warming and climate change going forward,” said Bruening. “That’s a remarkable trend that’s also very alarming.”

During his talk, Bruening offered five steps to help risk managers, carriers, and brokers model climate risks and take action to prevent losses. 

1. Understand natural hazard exposure. River flooding, coastal flooding, tropical storms, precipitation, drought, wildfires, and heatwaves are some of the most devastating natural hazards intensifying due to climate change. Determining how your exposure to such perils has changed over time — and modeling how they might change in the future is critical. 

2. Determine risks and vulnerabilities of assets and nearby infrastructure. Which of your assets are exposed to weather and climate risks — and what might those risks look like in the future? Answering that question requires site assessments, verify applied building codes, conduct site-specific flood reviews or other studies. Also, it’s critical to understand the vulnerabilities of nearby infrastructure like bridges, roads, switchyards, sewage treatment plants, and more. 

3. Determine your risk appetite and conduct a gap analysis. Map out business criticality, interdependencies, and market share relevance on a plant-by-plant basis. Use that information to determine your risk appetite for each facility and how that might be affected by climate change issues in the future. Then, determine the gap between your current design and design changes necessary to protect against climate exposures. 

4. Prioritize upgrades. You can’t upgrade all identified facilities at once, so prioritize based on business criticality,NatHaz impact severity, complexity, and cost. The individual asset strategy plays a significant role (remaining lifetime, space for expansions, etc.) Also, determine what isn’t worth addressing at all. 

“If an asset has a remaining lifetime of 10 years, it may not be important to upgrade it for climate change because it will not last long anyway,” said Bruening. 

5. Execute and take action. Make a plan, set aside appropriate budgets, and take action. Be sure your mitigation plan can evolve over time if your risk profile changes. 

Case study

One company that worked with Bruening and the risk engineers at TÜV SÜD Global Risk Consultants found that heavy rains led to roof ponding and water leaks in their facility. A climate change analysis determined that the particular region was facing 20% higher precipitation in the future. In response, GRC recommended that the client install larger diameter drains, resize emergency overflows, and recalculate below-ground rainwater ducts to increase the volume of water from drains. 

Those changes not only made the facility more resilient today but set it up to withstand a changing climate in the future.  

Interested in learning how to protect against future climate risks? Contact us for a free consultation.