When climate stops being a forecast and starts disrupting the business
Why more companies need to stress test strategy, operations and investment against climate reality
Most businesses still talk about climate in one of two ways. Either as a transition issue which requires focus on carbon, reporting, regulation and investor pressure. Or as a physical risk issue, something that sits with insurers, facilities teams, resilience specialists or the risk register. This split is becoming harder to sustain.
Climate impacts are no longer sitting on the periphery of the business agenda. They are starting to show up in freight routes, water availability, asset reliability, insurance costs, workforce performance and supply continuity. In other words, in the parts of the business that determine whether targets are met, margins are maintained, customers are serviced and investment pays back.
This is why I have been working on a Climate Stress Test as part of my wider climate-integrated planning work. The purpose is straightforward. It applies a structured stress test to strategy, operations and investments, testing exposure to physical risks, supply chain disruption, transition costs and workforce impacts under different warming scenarios.
The aim is not to produce a dramatic climate scare story but to surface any present and future impacts that require focus. It is to translate climate pressure into concrete operational and financial questions, so leaders can identify vulnerabilities, prioritise risks and make better trade-offs.
The question we should be asking ourselves is not whether climate matters, it’s where exactly does it affect performance, by how much and how quickly.
This is what stress testing is for. It’s not just another abstract discussion of risk, not another slide deck full of hazards. It is a disciplined way of understanding whether the business model, asset base, supply chain, workforce model and investment assumptions still hold up when real climate pressure is applied.
What the Climate Stress Test looks at
The structure of the tool is deliberately practical. It looks at four broad areas.
1) Physical asset and operational resilience. Can facilities cope with flood exposure, rising heat, water stress and more frequent interruption?
2) Supply chain and logistics integrity. How concentrated is sourcing, how dependent is the model on stable transit conditions, and where are upstream vulnerabilities hiding?
3) Financial and transition exposure. What happens to EBITDA, asset economics, insurance affordability or investment returns under rising carbon costs, regulation or physical disruption?
4) Workforce and human capital. Can people work safely and productively, and can they get to site when local infrastructure is disrupted?
These may sound like obvious questions. But real-world events keep showing how easily they are missed.
Where this becomes real
Water. In Taiwan’s 2021 drought, chipmakers prepared for worsening shortages by securing water trucks for facilities in Hsinchu. For a sector built on precision manufacturing and uninterrupted process control, this is not a minor inconvenience. It is a warning about what happens when a critical input is treated as reliably available until suddenly it is not.
Logistics. In 2022, low water levels on the Rhine reduced vessel loading so sharply that freight volumes fell materially and industrial producers faced higher transport costs and possible production cuts. A river level became a margin issue, a production issue and a competitiveness issue at the same time.
Business impact. Drought conditions in the Panama Canal in 2023 and 2024 forced weight restrictions, fewer daily crossings and shipment delays, the effect did not stay inside shipping. It moved into working capital, lead times, customer service, inventory logic and transport costs for the many companies being supplied through this route. Businesses do not need to own the chokepoint to be exposed to it. They only need a supply chain that assumes it will keep functioning as it always has.
The same applies to acute events. Ahead of Hurricane Milton in October 2024, energy companies shut pipelines and fuel terminals in the Tampa area. The point is not that storms are new. It is that climate-linked disruption increasingly reaches into systems businesses depend on every day, transport, fuel, ports, local access, warehousing, power and labour availability.
What leaders should be testing
This is why a useful climate stress test does not stop at the question, “What hazards do we face?” It goes further. Where are our most exposed assets? Which parts of the network depend on stable water, transport or temperature conditions? Where does our just-in-time model have no real buffer?
Which sites become unattractive if insurance premiums rise sharply or cover hardens? Which products, contracts or investment cases assume a level of stability that may no longer exist? How much of our operating model still depends on historic climate conditions?
This shift matters because climate adaptation is often treated as a narrow operational problem, when in reality it is frequently a strategic one. If repeated disruption raises cost, weakens service reliability, changes demand patterns, hardens insurance markets and makes certain assets or routes less viable, this is no longer just about protecting facilities. It is about protecting value, preserving optionality and avoiding strategic lock-in.
Why the scenarios matter
This is one reason the Climate Stress Test is built around both a 1.5°C and a 3°C lens. Under a lower warming world, businesses may face tighter regulation, carbon costs and transition pressure, but somewhat lower physical damage. Under a higher warming world, regulation may be looser in some markets, but physical and operational disruption becomes far more severe.
The point is not to predict a single future. It is to understand which vulnerabilities show up under both, and which decisions start to look fragile once climate pressure is applied.
What I find useful about this framing is that it moves the conversation from abstract concern to management action. It helps leaders identify if, where and how they may need to adapt.
What this can change
Implications might include redesigning site resilience, diversifying suppliers, changing inventory logic, revisiting capex assumptions, building water stewardship into operations, changing insurance and financing strategies, or reconsidering which markets, products and footprints still make sense under different scenarios.
It also forces a more honest discussion about business assumptions. Many strategies still rely, often implicitly, on relatively stable weather patterns, predictable logistics, insurable assets, manageable cooling costs and workforces that can operate in roughly the same way as before. That is not true everywhere any longer. And where those assumptions weaken, business performance starts to move with them.
For business leaders, the implication is clear. climate adaptation is not a side topic for sustainability teams or risk specialists. It is part of how the business protects continuity, allocates capital, designs resilience and decides what kind of enterprise it is trying to build. That sits squarely inside strategy, finance, operations and governance, not outside them.
Questions worth asking now
So, the useful questions are not, “Do we mention climate risk?” or “Do we have a heat policy somewhere?” They are tougher than that.
Where would climate disruption hit earnings first? Which assumptions in our strategy still rely on a more stable world than the one we are entering? What would break in our operating model if water, logistics, labour access or insurance became materially worse?
Which assets, suppliers, contracts or growth bets deserve to be stress tested now, before value is locked in? And if climate stopped being a forecast and started disrupting this business next year, where would we feel it first?
These questions would be a good place to start.
Examples referenced
Taiwan drought and semiconductor water supply measures, Reuters, 24 February 2021.
Low Rhine water levels and impact on German industry, Reuters, 15 August 2022.
Panama Canal drought disruption and shipping delays, Reuters, 21 August 2023.
Hurricane Milton shutdowns affecting Tampa fuel infrastructure, Reuters, 8 October 2024
