As extreme weather events increase in frequency and severity, supply chain resilience becomes essential for long-term business continuity. Yet many businesses lack the tools and insights to fully understand how these occurrences impact their supply chains. Without detailed visibility into physical climate-risk exposure — particularly at the asset level — businesses expose themselves to significant financial and reputational damage.

They must be able to identify where their supply chains are most vulnerable. When a storm wipes out a supplier’s factory or flooding closes a key port, the effects ripple across production schedules, customer commitments and bottom lines. Those that fail to proactively identify such vulnerabilities leave themselves exposed to avoidable disruption.

Automakers have been particularly impacted in recent years. Floods in central Europe shut down component manufacturers, disrupting supply to major brands such as Porsche and Volkswagen. Without these key components, they were forced to revise their annual production and profit forecasts. In Porsche’s case, shares fell 3% the day after it issued a profit warning.

These clear examples underscore the need to incorporate climate resilience into supplier due diligence. It’s no longer enough to assess suppliers based solely on price, quality and capacity. Climate risk must become a standard criterion.

In recent years, geopolitical considerations have nudged business leaders to consider nearshoring their supply chains, bringing them geographically closer to their main operations. This action may result in savings by reducing transportation costs or, more recently, tariffs. But what if those moves put your supply chain into regions at greater risk to severe weather and climate change? These are now essential considerations.

Business Costs Are Climbing 

Supply chain disruptions are just one of the major financial impacts of extreme weather on a business. As underwriters adjust for the increased likelihood and severity of extreme weather events, the cost of commercial insurance coverage is climbing. For global businesses, especially those operating in the most vulnerable regions, this creates a compounding issue: Not only are their assets at greater physical risk, but protecting those assets is more expensive than ever.

Meanwhile, extreme heat and humidity are pushing workers to their limits. Harsh conditions inhibit their ability to work at full capacity, and are more frequently exceeding thresholds at which companies cease production. Where possible, companies can install air conditioning to protect employees, but increasing global temperatures mean that these systems will be running longer, running up energy bills.

Climate risk-assessment can no longer sit solely within the sustainability function — it must be embedded into supply chain planning, procurement strategy and enterprise-wide risk management.

The First Step Toward Resilience

To build supply chains and operations that can withstand the pressures of a changing climate, businesses need to improve their visibility into high-risk geographies and vulnerable suppliers. It starts with identifying which parts of the supply chain are most exposed, whether due to location, infrastructure fragility or lack of contingency planning.

Tools are available to help businesses understand a range of future climate scenarios. Advanced models can quantify both the probability and potential financial impact of climate risks into dashboards and key performance indicators. They allow companies to assess how trends in extreme weather could impact operations, cash flow and even insurance premiums.

Once risks are understood, companies can take proactive steps to manage them. That might mean diversifying suppliers to reduce geographic concentration, relocating production sites to more stable regions, or investing in floodproofing or fire mitigation for key assets.

Reporting for Resilience

For many companies, awareness of climate risk began as a regulatory reporting obligation. Although recent political sentiment in some jurisdictions appears to be rolling back some of these requirements, many of the world’s largest companies will still need to disclose their climate risk at some stage. Other external pressures, particularly from investors, still exist. Accurate, transparent reporting helps inform internal decision-making and earns the trust of investors, customers and partners. It shifts the conversation from compliance to capability — from ticking boxes to building operational resilience.

The most successful businesses will be those that go beyond the minimum, using climate risk insights not just to comply, but to inform strategic decisions that protect their supply chains and realize long-term value. At the end of the day, climate risk is business risk.

The message is clear: businesses can no longer afford to treat climate risk as someone else’s problem or tomorrow’s challenge. It is today’s supply chain reality. Those who act now — investing in visibility, analytics, and mitigation —  will be far better positioned to weather the storms ahead.

Tom Sabbatelli-Goodyer is vice president, climate risk, solutions management at FIS.