Over the past few years, Canadians have braced themselves against some extreme weather events. From wildfires to ice storms, torrential downpours, and flooding, climate change’s effects on the weather are no longer debatable. So, how are extreme weather events impacting Canadian businesses? Let’s take a look below.
What is the ‘New Normal’?
Following last week’s torrential rains and power cuts, are extreme weather events the ‘new normal’? Residents of the Greater Toronto area (GTA) will say ‘yes,’ as do 92% of Canadian business leaders polled for a new KPMG Canada research report. The survey, which includes 350 business leaders, found that more than half of the companies saw profitability decline due to extreme weather. “Canadian companies need to take a proactive approach to assess their insurance needs related to extreme weather and climate change,” says Doron Telem, a partner and National ESG Leader for KPMG Canada.
Extreme weather events had a large impact on business operations last year:
- 57% of companies experienced direct operational impacts, such as loss of power, water supply, and communication
- 56% say they suffered a hit to their profitability from last year’s extreme weather events
- 49% faced significantly increased costs
- 41% reported a loss of revenue
- 50% of the businesses had employee productivity affected
- 47% faced supply chain disruptions
- 30% reported significant increases in insurance costs or cancellations
$3.1 billion in insured extreme weather events damage last year
Insurance concerns are mounting along with costs, as severe weather caused over $3.1 billion in insured damage last year according to Catastrophe Indices and Quantification Inc. The rising trend of extreme weather has led to catastrophic losses averaging $2.3 billion a year between 2011 and 2020. This is up from $675 million a year in the previous decade, according to a recent report from shareholder advocacy group, Investors for Paris Compliance.
“The extreme weather events of the last couple of years have driven home the cost of climate change to the Canadian economy and the bottom line of individual businesses,” says Roopa Davé, KPMG in Canada’s National Climate Risk Leader. “Devastating forest fires, floods, hurricanes, and extreme heat have impacted profitability for more than half of Canadian companies. Even those that escaped damage fear they will be hit this year – with over two-thirds being very or extremely concerned.”
Businesses committing to sustainability are facing hurdles
Businesses are now treating climate risk as a critical enterprise risk, taking steps to adapt and build mitigation strategies that help them navigate increasingly unpredictable weather events. “A robust climate risk assessment includes multiple integrated factors, including potential impacts on a company’s facilities, supply chains, and business model,” noted Telem of KPMG Canada. “In addition, companies should determine the vulnerability of their physical assets and operations to these risks and assess the potential financial impact,” says Telem.
The survey, conducted in June, found 88% of companies were willing to make more investments to support climate-related goals. However, also 80% say their firm lacks the resources to make emissions reductions a top priority. “This has obviously become very real world for Canadian businesses,” says Davé. “Most companies are at that early front-end stage of identification and assessment,” she said. Partner and National ESG Leader for KPMG in Canada Doron Telem concurred, “Most (businesses) are struggling to find the capacity, collect the required data, and navigate an increasingly complex regulatory environment.”
Most analysts agree that organizations should not wait for regulation to drive their sustainability goals. “They (businesses) should focus on value creation and protection by developing and executing transition plans to lower emissions today. It is critical to understand which projects can have a positive ROI and, in parallel, which operations create challenges for meeting sustainability goals and require alternative approaches,” says Mr. Telem.
Carbon Markets and Extreme Weather Events
One of the most cost-effective ways of incentivizing committing to climate change reduction is to put a price on carbon, which can be accomplished through either a carbon tax or a cap-and-trade program. Carbon markets allow carbon credits or offsets to be bought or sold to help businesses improve their carbon footprint. Many businesses now participate in carbon markets in an attempt to reduce greenhouse gas emissions. Through the issuance of carbon credits and offsets, businesses now have an incentive to participate in carbon markets to lower their carbon footprint. In doing so, they are not only helping the environment at large but improving their bottom line in the process.
When it comes to assessing your risk, we’re happy to walk you through your policy to ensure adequate coverage for your business. For more information on business insurance, contact isure today!
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