In the early 2000’s to talk about adaptation to climate change impacts was almost verboten in sustainability circles – seen as a defeatist distraction to the real task at hand, to mitigate greenhouse gas emissions. However, despite the focus on emissions reduction, the global economy has thus far failed to decarbonise at a rate required to limit climate change to the ‘safe’ level below 350ppm of CO2 equivalent.

The World Meteorological Organization recently confirmed that, in 2024 the rise in global average temperatures above pre-industrial averages hit the key 1.5ºC threshold (at least temporarily).  The physical risk impacts associated with climate change have already begun to manifest, and will continue to compound even if global emissions ceased overnight.  Accordingly, adaptation to the physical risks associated with climate change – for plant and equipment, infrastructure, workforces and logistics chains designed for a different operational environment – has become as critical to the commercial management of climate-related financial risks as emissions reduction.

In that context I was particularly concerned (although not necessarily surprised) at the conclusions expressed by S&P this week that only 32% of S&P 1200 companies have climate risk adaptation plans in place. This is despite the fact that those same companies have an estimated US$1.2 trillion – per year – in exposure to climate-related hazards by 2050.

So what must companies do now?

Clearly, it can be no response that there is no current ‘bandwidth’ to consider this foreseeable (and, across many industries, material) financial risk.  Unfortunately, companies and their boards do not get to ‘choose’ what risks are material to their financial position, performance or prospects. This does not mean that adaptation to climate-related risks must be prioritised vis-à-vis all other risks and opportunities – but that consideration should be given in proportion to its magnitude.

If nothing else, companies should start by asking:

• Do our central case assumptions on the impacts of climate change to our business continue to accurately reflect current data on the scale of potential impacts?
• What are the most material exposures for our business – whether these lie within our four walls or within our value chain?
• On what basis do we have confidence that such risks can continue to be commercially insured?

The answers to those questions may be ‘inconvenient’ within a broader ‘business as usual’ strategy.  However, a proactive approach might just give companies the information they need to enable the business to continue to thrive in a world in which the future looks nothing like the past.

This article offers just a glimpse into our thinking on this issue. We provide a range of tailored Insights services to support our clients. For more information or to discuss how we can support you, please reach out Pollination Law Managing Director Sarah Barker, or Head of Knowledge & Insights Kate Hilder, to discuss.