Climate resilience – the strategic success factor for companies

Numerous regions of the world are facing both an increase in physical climate risks, for example in the form of extreme weather events such as floods, heatwaves or storms, as well as growing transitory risks as a result of climate policy, regulatory and market transformation processes¹. Companies with global value chains are affected at numerous locations by the vulnerability of individual countries to climate change. Every year, the University of Notre Dame publishes the ND-GAIN country index, which assesses the climate vulnerability of countries in relation to their willingness to improve their climate resilience. The more resilient a country is to climate change, the higher its ranking in a global comparison.

Companies that do not take suitable adaptation and resilience measures to protect themselves in this volatile environment are particularly vulnerable to the negative effects of climate change on people and the environment. Extreme weather events cause considerable direct costs: in Germany alone, climate-related damage caused by heat, droughts and floods will amount to at least 145 billion euros between 2000 and 2021². Sectors such as agriculture and forestry are particularly affected: Heatwaves and dry spells lead to crop failures and resource shortages, which can destabilize national economies as well as global value chains. This also has a direct impact on production capacity, supply chains and transportation routes in the commercial industry. In particular, companies may experience production interruptions and impacts on their employees, which in turn leads to significant restrictions in their ability to do business. A fundamental measure to minimize risk is the location-based analysis of flooding scenarios^​3. The flood hazard maps and climate atlases of the federal states can be used for this purpose. In addition, reinsurers such as Munich Re provide comprehensive, data-supported location analyses that map different environmental and climate risks in detail⁴. In view of the growing potential for damage, it is essential that medium-sized companies also systematically identify and assess climate risks and integrate them into their strategic planning. In the face of climate change and its effects, flying blind can have devastating consequences for the future of any company. 

Climate resilience describes a company's ability to be prepared for climate-related disruptions, to respond appropriately and to adapt to new conditions. Resilience encompasses both physical risks - such as safeguarding production sites against extreme weather - and transitory risks such as new regulations or changing market conditions. The aim is to reduce the risk potential for your own company in the short, medium and long term. A strategic solution approach that comprehensively covers potential and actual risks and effects along the entire value chain is of central importance here. 

Building climate resilience is a process that must be individually tailored to the business model, industry and regional risks and opportunities. Nevertheless, basic building blocks can always be defined: The starting point is a comprehensive climate risk analysis that assesses both physical and transitory risks. Based on this, a catalog of measures is developed that includes preventive protective measures as well as adaptation strategies. A key instrument is the transition plan, which describes the transformation towards a sustainable, climate-neutral business model. This involves not only measures to decarbonize existing production or business processes, but also the sustainable safeguarding of supply chains, resource management and, in particular, the leveraging of innovation potential. Climate resilience and transition plans for climate change are now supported by regulatory requirements in many countries and regionsIn the EU, both the Corporate Sustainability Reporting Directive (CSRD) and the Voluntary Sustainability Reporting Standard (VSME) require companies to disclose their own corporate strategy on these topics. 

For companies, analyzing their own climate resilience should not just be seen as a necessary task in order to comply with reporting obligations. A close look at climate-related risks and opportunities offers companies the opportunity to leverage efficiency potential, save resources and tap into new business areas. By uncovering weaknesses in their own processes, supply chains or locations, resources can be directed towards optimizing key components of their business activities. Significant potential savings can often be achieved in the area of energy and raw material consumption. This reduces environmental impact and saves costs. 

The climate crisis should not only be seen as a risk, but also as an opportunity. Against the backdrop of unstoppable climate-related transformation processes, it can be assumed that technologies and markets will shift. New needs will arise in the areas of low-emission technologies, energy efficiency, climate-resilient infrastructure and sustainable services, which must be met with new technologies and services. A sound understanding of climate-related changes enables proactive action. Climate risk analyses - in accordance with TCFD or CSRD specifications - show in which regions or sectors climate-related solutions will be particularly in demand in the future. This will result in new products, markets and collaborations for many sectors. The coming years will be dominated by innovation and new key technologies in the fields of energy, water, agriculture, transportation and resource and material efficiency. Those who invest early and drive innovation will not only position themselves as resilient, but also as drivers of sustainable growth. And this in turn contributes to the economic success and attractiveness of the company.

We would like to highlight one example below - the water supply. Drought, heavy rainfall and severe storms are becoming the new “normal”. A considerable innovation push will therefore be required in order to store, save, use, distribute, purify and recover our drinking water more intelligently. Southern European countries are already suffering considerably from water shortages⁵. The extraction of drinking water from seawater will become an extensive field of technology in its own right. Traditionally very energy-intensive, membrane technologies are now being developed in the context of reverse osmosis, through which water can be treated as energy and material-efficiently as possible⁶. In addition, the focus will also be on the storage of water (centralized and decentralized), as well as the perfect management of heavy rainfall (e.g. the use of the potential of so-called sponge cities⁷), plus the minimization of evaporation or pipe losses.

Only a small selection of other key technologies is listed in the following diagram. It is the task of the management of each company to examine in which fields of technology existing or new products can be used.

The energy and water infrastructure is therefore undergoing a transformation that offers considerable technological opportunities - the same can be expected for agriculture. 

A study by KfW shows that 22% of all companies surveyed plan to offer products or services related to climate protection within the next three years. The construction industry, which currently has the highest proportion of companies with climate protection goods in their product portfolios, accounts for a total of 52%⁸. Renewable energies, including storage and grids, play the leading role in the climate protection-related turnover of German companies.

Companies that are aware of their vulnerabilities, strategically analyze climate risks and develop an ambitious transition plan create a resilient foundation for the future of their business. Climate resilience not only ensures the ability to survive change - it opens up new opportunities and markets, strengthens competitiveness and contributes to the global transformation towards a sustainable economy.