The other day, I was scanning my Twitter Feed, and I see a link for an article from CFO Magazine titled Don’t Let the Climate Change Your Business . Being somewhat of an environmentalist in my other life (I have also written for an ecology blog) this raised my eyebrows a little. What is their real message? Are they denying climate change? Are they telling us to ignore climate change? OK – my interest is peaked, let’s go take a look.
The article starts with a litany of the devastation caused by the recent flooding in Baton Rouge. Note: Since the article was written before the complete toll was known, I am going to provide the latest updated numbers
- This non-named storm dumped 7.1 TRILLION gallons of water on Louisiana. That is almost 3 times the amount dropped by Hurricane Katrina.
- 13 people are confirmed dead as a result of the storm.
- Approximately 160,000 structures were damaged or destroyed.
- As of this writing, the full economic toll has not been calculated, but businesses, schools, and government has been disrupted, and the vast majority of the affected properties were not insured for flood.
The report points to a whitepaper from FM Global titled Coping with Extremes: The Impact of Climate Change on Extreme Precipitation and Flooding in the United States and How Businesses Can Prepare Now (PDF)
The whitepaper goes through some of the science of climate change, talks about El Nino and makes this one key point:
We feel climate change not so much from subtle changes to the mean, but through changes in the extremes.
And these extreme events, be they flooding, wildfires, or other events can impact business in a variety of ways, from damaging facilities to disrupting supply chains to impeding sales.
And the impact of these events can devastate businesses. As FM points out in another report titled Flirting with Disaster – Why Companies Risk it All (PDF)
Natural disasters are on the rise. According to Swiss Re’s annual research on natural catastrophes and man-made disasters, the number of significant events, on average, nearly tripled since the early 1980s. Concurrently, insured losses have exploded annually from, on average, less than US$10 billion to more than US$100 billion in recent years.
And they find that companies are not prepared:
Ninety-six percent of financial executives surveyed said their companies have operations that are exposed to natural catastrophes like hurricanes, floods and earthquakes, yet fewer than 20 percent said their organizations were “very concerned” about such disasters negatively affecting their bottom line. Additionally, although 80 percent of companies have operations located in regions exposed to hurricanes, nearly 50 percent reported that they are not well-prepared for a hurricane.
Finance departments can take a number of steps to help their organizations increase their resilience and mitigate risk. Among them
- Don’t deny or procrastinate: Too often we are focused on short term projects or problems. Urgent takes priority over important. But when a disaster strikes, it is too late. Things you thought were urgent will no longer be important
- Look for single points of failure: Since it is impossible to predict exactly where the next disaster will strike, look for places where you are vulnerable. What facilities, transportation routes, or other infrastructure are you dependent on? Do you have backup?
- Consider the entire supply/value chain. How vulnerable are key suppliers, distributors, and customers?
SVA helps finance departments to make their core processes more efficient, resulting in more time available for value added tasks. We are frequently asked what finance departments can do with this time? While we know that there are multiple ways finance departments can add value, risk evaluation and mitigation are right in the wheelhouse.