Climate change: mitigating the risks to business
Global warming is seeing Australia’s climate change. According to the CSIRO:
- Australia, on average, has warmed by 1.51 ± 0.23 °C since national records began in 1910. There has been an increase in extreme heat events associated with the warming.
- There has been an increase in extreme fire weather, and in the length of the fire season, across large parts of Australia since the 1950s. This has led to larger and more frequent fires, especially in southern Australia.
- In the south-west of Australia, there has been a decline of around 16% in April to October (cool season) rainfall since 1970. Across the same region, May to July rainfall has seen the largest decrease, of around 20%, since 1970.
- In the south-east of Australia, there has been a decrease of around 9% in April to October rainfall since 1994.
- October to April (wet season) rainfall in northern Australia has increased by around 20% since 1994.
- Heavy rainfall events are becoming more intense.
Climate change is not only impacting the weather and climatic conditions, but having a flow-on effect for business – increasingly impacting operations as extreme weather events disrupt industries and supply chains, while governments introduce regulatory frameworks and ESG requirements tighten. More than ever, businesses need to identify, assess and manage climate-related risks that have the potential to affect their financial stability and long-term viability.
Extreme weather risks increasing
Businesses across the country face a myriad of extreme weather risks – bushfire, drought, floods, hail, storms, cyclones, earthquakes, tsunami, sea level rise. The frequency and severity of extreme weather events and natural disasters are increasing thanks to climate change.
The CSIRO notes further projected effects of climate change include:
- Continued warming, with more extremely hot days and fewer extremely cool days.
- A further decrease in cool season rainfall across many regions of the south and east.
- Continued drying in the south-west of Western Australia.
- Likely increases in the average duration of drought and aridity in regions within the south and east.
- A longer fire season for much of the south and east, and an increase in the number of dangerous fire weather days for many regions.
- More intense, short-duration heavy rainfall events.
- Fewer tropical cyclones, but a greater proportion of high intensity. The intensity of rainfall associated with tropical cyclones is also expected to increase.
- Ongoing sea level rise.
- More frequent extreme sea levels linked to coastal inundation and coastal erosion.
- Increased and longer-lasting marine heatwaves.
- An increase in the risk of disasters from extreme weather, including ‘compound events’, where multiple hazards and/or drivers occur together or in sequence, thus compounding their impacts.
The Federal Government’s National Climate Risk Assessment (NCRA) states: “Hazards may occur more frequently, with greater intensity or different characteristics, and multiple hazards may occur at the same time, causing wide-ranging impacts across the built, economic, social and natural environments.” Global warming is set to have consequences across various facets of Australian life and business. Some of the financial impacts alone include:
- $40.3 billion – projected disaster costs each year by 2050.
- $423 billion – loss in economic output/labour productivity by 2063.
- Up to 2.7 million working days – lost to heatwaves each year by 2061.
- $611 billion – loss of property values by 2050.
Rising risks for businesses
Businesses are facing several risks as a result of climate change, including natural catastrophe (NatCat), workplace, regulatory, reputational, and operational risks. For some businesses, the risk is due to direct reliance on natural resources and exposure to extreme weather events. Other industries face challenges from supply chain disruptions, operational risks, and infrastructure damage.
With evolving risks, businesses need to adopt strategies to address those climate change challenges.
Property damage/BI risks: NatCats and extreme weather
Businesses in certain industries have a greater exposure or vulnerability to extreme weather events such as bushfire, drought, heatwaves, flood, hail, storm, cyclone or sea level rise. Amongst these industries are agriculture, viticulture, horticulture and aquaculture, forestry, mining and exploration, construction, transport and logistics, cargo, heavy industry, infrastructure, the energy sector, manufacturing, and tourism.
The Climate Council notes that two million Australian properties are currently at moderate to high risk from climate-fuelled extreme weather events.
According to Verisk, the global modelled insured average annual property loss from NatCats has reached US$152 billion. Over the last five years, annual insured losses have averaged US$132 billion, compared to US$104 billion over the previous five years. The report found that property exposure grew at an average annual rate of 7% from 2020 to 2024.
Risk mitigation strategies to consider include:
- Understanding which extreme weather risks the business is exposed to and the potential impact to the business if an event were to occur.
- Implementing specific weather-proofing measures (e.g. flood-proofing, bushfire protections, cyclone-proofing).
- Ensuring the business has robust disaster recovery, contingency, and emergency response plans in place.
- Exploring the insurance options available to protect the business from extreme weather event losses. In addition to traditional covers such as property damage, business interruption, and contingent business interruption, consider alternative risk transfer solutions like parametric insurance. Read more about parametric insurance.
Workplace risks: WH&S
Some businesses, particularly those with non-office-based workforces, may have a greater need to address climate change risks that impact workers’ health and safety. In particular, risks associated with extreme heat and heatwaves.
Risk mitigation strategies to consider include:
- Understanding the specific risks workers face.
- Where feasible, reducing worker exposure to extreme heat scenarios (e.g. erecting shade structures, installing air-conditioning, scheduling).
- Ensuring the business implements policies, procedures and protocols to protect workers including the use of PPE, the supply of water, sunscreen, hats and other protective measures (e.g. ice vests), and mandatory employee breaks.
- Taking the weather into consideration when scheduling activities/works.
- Monitoring for signs of heat stress, and ensuring first-aid training includes heat-related conditions.
- Training supervisors/managers to identify heat stress, and ensuring heat mitigation measures are applied.
- Ensuring compliance with laws and regulations in respect to worker conditions.
- Where appropriate, working with union representatives to set realistic policies and protocols around working in the heat. In some jurisdictions, WH&S legislation affords unions certain rights, while some unions also take strong stands in relation to worker conditions. In some cases, heat-related worker conditions may be outlined in contract negotiations, EBAs and so forth (e.g. some CFMEU EBAs state that workers will stop work and leave site when the temperature reaches 35°C).
- Safeguard the business, its directors and management with appropriate insurances such as employment practices liability (EPL), directors’ and officers’ (D&O), management liability, and statutory liability.
Statutory risks: regulations and requirements
As countries around the globe strive towards climate change targets (such as net zero), businesses are increasingly being required to also meet targets in respect to lowering their carbon footprints, and report on their progress. For example, as of 1 January 2025, many large Australian businesses and financial institutions became subject to mandatory climate-related financial disclosures. While not all businesses need to meet this requirement themselves, they may need to assist business partners that are required to prepare annual sustainability reports. The mandatory climate disclosure rules require large businesses to account for scope 3 emissions produced within their value chains. As this includes emissions from small suppliers (both upstream and downstream in their supply chains) with whom they engage, SMEs may need to supply their partners with emissions-related information. ASIC noted: “For example, a large business may need to report on their energy usage. To fulfill that reporting obligation, they may ask you for records of your business’s energy use, such as electricity bills, so they can create a full picture of their own energy use.”
Risk mitigation strategies to consider include:
- Understanding your business’ obligations in respect to sustainability goals.
- Ensuring compliance with all regulatory and licensing requirements.
- Understanding your business’ statutory reporting requirements and that of your business partners.
- Monitoring the evolving regulatory landscape to ensure continued compliance.
- For businesses in the supply chain, being prepared to provide climate-related information and details to assist partners in reporting.
- Budgeting for costs associated with compliance and operational changes.
- Protecting the business and its management with appropriate insurances, such as D&O, professional indemnity (PI), management liability, and statutory liability, together with applicable environmental policies such as climate liability, carbon offset insurance or energy efficiency insurance.
Reputational risks: ESG
It isn’t only governments that have increasing expectations about a business’ response to climate change issues. As awareness about climate change and its impacts grows, clients, customers, business partners, suppliers, and the public are increasingly scrutinising a business’ actions. For some businesses, clients/customers may have expectations in relation to business procedures/products/services being more environmentally friendly. In some cases, it may be a condition of doing business (e.g. contractual obligation), particularly for business partners with their own ESG commitments to meet.
In recent years there has also been a growing trend towards litigation when a business has failed to meet its ESG obligations (statutory) or stated commitments. The Grantham Research Institute’s Global Trends in Climate Litigation 2025 Snapshot notes climate related litigation continues to expand in scale, scope and geographic reach. “A further 226 new cases were filed during 2024, bringing the global total to approximately 2,967 cases across more than 50 jurisdictions. More than 80% of these filings are seen as ‘strategic in character’, intended to advance climate objectives or enforce accountability”, notes law firm Gilbert + Tobin. Australia accounted for 164 cases – the second highest jurisdiction after the US (which accounted for close to 2,000 cases).
Risk mitigation strategies to consider include:
- Implementing sustainable practices such as energy efficiency, waste reduction, ‘green’ technologies, and eco-friendly materials.
- Prioritising partnerships with other businesses with sound and robust sustainability practices.
- Ensuring all sustainability requirements set out in contracts are met.
- Being mindful of ‘greenwashing’ and ensuring all statements made are factual, unexaggerated and are supported with evidence. Read more about greenwashing.
- Considering the financial and reputational damages the business may face if it fails (whether in action or representation) in its efforts (or duty) to be more sustainable.
- Exploring the insurance options available to protect the business and its management such as D&O, PI, products and public liability (PPL), legal expenses insurance (LEI), and specific reputation covers.
Operational risks: supply chain disruptions
Extreme weather can compromise supplies, raw material availability, and transportation. For example, a drought caused the water level in the Panama Canal to decline to a record low. This, in turn, led to the restriction of marine traffic through the passage, and flow-on effects along the supply chain.
Extreme weather can have other impacts on operations too. As an example, droughts and extreme heat are leading to water scarcity issues. This can have a detrimental effect on water-intensive industries such as agriculture, mining, energy production, and manufacturing.
Risk mitigation strategies to consider include:
- Conducting climate risk assessments to identify operational vulnerabilities.
- Diversifying supply chains to reduce reliance on single suppliers or routes that may be impacted by local extreme weather events.
- Evaluating suppliers with respect to their climate resilience.
- Ensuring the business has emergency response, contingency, and recovery plans in place.
Impact on insurance
The increasing frequency and severity of extreme weather events has a flow-on effect to insurance (predominantly property cover, but other commercial lines are also impacted).
According to the Global Catastrophe Recap, worldwide insured losses from January to June this year are expected to be at least US$100 billion – the second highest figure on record (the average for the period is US$41 billion). Swiss Re has estimated that insured losses from NatCats could reach US$300 billion or more during peak years.
The total insured cost of extreme weather events that impacted Australia in the first half of 2025 exceeded A$1.8 billion, data from the Insurance Council of Australia showed. Annual losses could reach A$8.7 billion by 2050, according to a report from the Climate Change Authority.
Insurer IAG notes that the frequency and severity of extreme weather events continue to rise – with the number of such events doubling since 2015, presenting significant challenges for individuals, businesses, and the national economy. Figures showed that between 2020 and 2025, Australia experienced 14 declared catastrophes and eight other major weather events, resulting in A$22.5 billion in insured losses – a 67% increase over the previous five years.
As insurers sustain higher costs from the disasters, coverage and premiums are adjusted to reflect the increased risks. In some cases, cover for extreme weather events is removed or limited, sometimes making placing cover difficult. In other cases, the cost of cover increases, in some instances to the point of not being financially viable.
Insurers are increasingly considering a business’ climate change/ESG obligations and commitments when assessing risks, which determines if the insurer will offer cover, under what terms and conditions, and at what price.
Key takeaway
Climate change presents an evolving risk landscape for many businesses. In order to navigate the challenges successfully, businesses need to develop climate risk mitigation and resilience strategies, and integrate sustainability practices and risk management into operations.
Insurance can play a key role in risk mitigation but, as with the climate change landscape, insurance is also evolving as risks change. It is important to view existing insurance programs through a climate lens to ensure policies will respond as necessary in the event of a claim. And, depending on the business’ exposure to certain risks, new insurance products may need to be considered.
Need expert guidance?
Your EBM Account Manager can discuss the risks climate change poses to your business and the mitigation strategies you can implement to help protect it from potential financial and reputational damages.
