When Climate Risks Hit Business: Real-Life Lessons for Leaders

Climate disruptions are no longer distant warnings. Businesses across industries are already experiencing the effects of extreme weather, rising temperatures, and shifting climate patterns. These events are not just environmental concerns — they are triggering supply chain breakdowns, financial losses, and temporary shutdowns of operations. For too long, climate risk has been treated as a future problem, but the reality is clear: the risks have already arrived.

Each disruption serves as an alarm, showing that waiting is no longer an option. This blog explores real-life examples of how climate events have disrupted businesses across the globe and also highlights the lessons organizations can take from these experiences to prepare for the challenges ahead.

Real-Life Examples of Climate Events Disrupting Business

1. Local SMEs Hit by Coastal Storms

In September 2024, Root Hill Cafe in Brooklyn was severely impacted by a record-breaking rainstorm that flooded the café’s basement and ground floor. Co-owner Alejandra Palma estimates the business lost $3,500 in sales and employee pay for each of the five days it was closed due to flood damage. This was not an isolated incident, as Palma has dealt with recurring floods every year, adding pressure on the already strained business. With mounting repair costs and rising flood insurance premiums, Palma fears that the café, like many small businesses, is one disaster away from shutting down permanently. The flood highlights a growing problem for small businesses across the US, where 27% of owners report they are at risk of closing due to climate-related disasters.

2. Hurricane Otis Hits Acapulco

In October 2023, Hurricane Otis struck Acapulco, Mexico, with winds reaching 310 km/h, leaving the city devastated. The hurricane destroyed 80% of the hotels, including the city's 20,000 hotel rooms, which are expected to remain inoperable for a long period. This massive damage has crippled the local tourism industry, a key economic driver in Acapulco. The storm also knocked down 58 high-voltage pylons, leaving much of the city without power, which disrupted businesses across multiple sectors, from hospitality to retail. The incident highlighted the vulnerability of regions heavily reliant on tourism and infrastructure in the face of climate change.

3. U.S. Oil Refining Losses Due to Hurricanes

Hurricanes have historically disrupted U.S. oil refining, leading to significant losses and price increases. In 2005, Hurricanes Katrina and Rita knocked out 5.6 million barrels per day (bpd) of refining capacity, amounting to 33% of national capacity. This led to a 46-cent increase in retail gasoline prices, which surged to $3.12 per gallon. In 2008, Hurricanes Gustav and Ike caused outages that affected up to 7 million bpd—around 38% of national capacity. In 2017, Hurricane Harvey flooded Texas, shutting down 4.4 million bpd of refining capacity and pushing gasoline prices up by 29 cents, while some refineries remained closed for months. These recurring disruptions show the vulnerability of the oil refining sector to climate-related events, which can severely affect fuel availability and prices.

4. Retail Disruptions Due to the 2021 Texas Winter Storm

In February 2021, Winter Storm Uri brought unprecedented cold temperatures and ice to Texas, leading to widespread power outages and severe disruptions in retail operations. Major retailers like Walmart were forced to close stores temporarily due to power failures and hazardous road conditions. This resulted in significant inventory shortages and delayed deliveries, impacting product availability for consumers. Additionally, the storm's effects on the supply chain led to limited stock of essential items, making the challenges faced by both businesses and customers worse. The event underscored the vulnerability of retail operations to extreme weather events and highlighted the need for robust climate resilience strategies.

5. The Impact of the 2011 Thailand Flood on Swedish Firms

The 2011 Thailand flood provides a striking example of how distant climate events can disrupt business operations. Despite Sweden and Thailand being far apart geographically, the flood had a major impact on Swedish firms that relied on imports from Thailand. In theory, these imports could have been easily substituted by sourcing from nearby countries, but the reality was very different. Swedish firms saw an average production decline of 8%, with the effects on production being nearly 30 times larger than the drop in imports. This event highlights the vulnerability of businesses to global supply chain disruptions caused by climate-related disasters, even when the affected region is geographically distant.

Understanding Climate Risks: What Businesses Can Learn and How to Act

The examples of businesses disrupted by climate events highlight a critical lesson: climate risk is no longer a distant threat; it is an immediate and tangible challenge. Here are key takeaways for businesses to consider:

1. Diversify Supply Chains

Relying on a single supplier or location can significantly increase vulnerability to disruptions caused by climate risks. For example, the 2011 Thailand floods caused widespread supply chain delays, highlighting the need for diversification. To reduce the risk of major operational setbacks, businesses can consider diversifying suppliers across different geographic locations. Having alternative sources and multiple suppliers will ensure continuity and reduce dependency on any single region, making supply chains more resilient to climate events.

2. Invest in Resilience Planning

Building a comprehensive resilience plan is essential for businesses to weather the impacts of climate risks. Resilience planning includes measures like upgrading infrastructure to withstand extreme weather and developing disaster recovery protocols. Businesses that invest in these proactive measures, like those who prepared for Hurricane Harvey, experienced quicker recovery and reduced downtime during the disaster. A well-thought-out resilience plan ensures that when disruptions do occur, businesses can bounce back faster and with less financial strain.

3. Build Financial Resilience

Having a financial safety net is essential to managing unexpected costs caused by climate-related disruptions. Businesses should consider climate-specific insurance policies or reserve funds to cover the potential financial impact of disasters. Building financial resilience ensures that disruptions do not lead to long-term financial instability, allowing businesses to recover more quickly and continue operations without excessive strain. By being financially prepared, businesses can focus on long-term growth and stability, even in the face of climate risks.

4. Upgrade Infrastructure for Climate Resistance

Investing in infrastructure that is built to withstand extreme weather is key, especially if the business operates in high-risk regions. Flood-proof facilities in flood-prone areas or fire-resistant buildings in wildfire-prone zones are essential upgrades. Given the geographical location and potential climate risks, these infrastructure investments can minimize damage and ensure that operations continue even when severe weather strikes. Upgrading infrastructure is a forward-thinking approach that helps businesses stay operational and resilient in the face of climate disruptions.

5. Prepare for Operational Downtime

Disasters and climate events may lead to operational downtime, so it’s important to plan for such disruptions. This involves setting up backup operations, having contingency plans in place, and ensuring that essential functions can continue even during unexpected events. Preparing for downtime can also mean having remote work systems or decentralized operations to minimize business disruption. By being ready for interruptions, businesses can ensure continuity and avoid prolonged setbacks during crises.

6. Strengthen Community Engagement

During climate events like the Australian bushfires, local communities often play a crucial role in recovery. Engaging with local communities and supporting resilience efforts can create a network of mutual support. Collaborative recovery efforts, including helping restore local businesses and economies, help rebuild faster and more effectively. By fostering strong relationships with communities and encouraging collective action, businesses can ensure that they are better supported and have the resources needed to recover quickly from climate-related disruptions.

7. Implement Climate Risk Assessments

Periodically assess climate risks specific to the organization's industry and region. Understanding how climate risks, such as floods, wildfires, or extreme heat, could impact operations is crucial for making informed decisions. Tailored risk assessments can highlight vulnerabilities in the supply chain, infrastructure, and workforce. By identifying these risks early on, businesses can proactively take targeted actions to mitigate potential disruptions. This assessment helps prioritize resources and action plans, ultimately safeguarding long-term business stability.

8. Monitor Climate Impact on Employee Well-Being

Climate risks also affect employees' health and productivity. Extreme weather events, such as floods, hurricanes, or heatwaves, can lead to absenteeism, physical health issues, or emotional stress. It's crucial to implement a support system that addresses employee well-being during climate crises. This can include offering flexible working arrangements, mental health support, and safety measures to ensure employees feel supported during disruptive events. By monitoring and caring for employees’ well-being, businesses can minimize disruptions and maintain productivity during climate events.

Preparing for Tomorrow’s Reality

These real-world examples make one point clear: climate risk is business risk. Organizations that treat climate risk as a strategic priority are better equipped to handle future disruptions, as they can proactively prepare and implement risk mitigation strategies. By acting early to address climate vulnerabilities, businesses not only reduce potential operational setbacks but also enhance their ability to respond effectively when challenges arise. In the long run, adopting a forward-thinking approach to climate risk management positions organizations to remain competitive and sustainable in an increasingly unpredictable and challenging climate landscape.