[WHITEPAPER] Navigating Climate Threats And Proactive Mechanisms To Achieve Business Climate Resilience

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Navigating Climate Threats and Proactive Mechanisms to Achieve Business Climate Resilience

Whitepaper

Executive Summary Record numbers of severe weather events attributed to climate change - such as hurricanes, droughts, extreme temperatures, and flooding - have resulted in more than $2.2 billion in damage to physical assets in the US alone (US Billion- Dollar Weather and Climate Disasters (2022), NOAA National Centers for Environmental Information (NCEI)). As the severity and frequency of these events increases, organizations face financial consequences and the added risk of business disruption from looming policy and regulatory changes, as part of the transition towards a low-carbon economy. A study conducted by independent research firm, Verdantix finds that although many organizations are aware of both the physical risks associated with climate change, such as potential damage to real estate assets, and transition risks, which results from political and legal commitments to tackle climate change, the measures and systems to manage these risks are often under-funded. Specifically, corporations do not always associate climate change-related events with business risk and business continuity, leaving them more susceptible to damage from these events. Moreover, many organizations rely on insurers to provide operational, financial, and regulatory resilience against complex weather events. However, due to the unpredictability of such events, traditional insurance and reinsurance models used for recovery may overlook risk and may delay the dispersal of funds, resulting in organizations not being able to react and adapt in a timely manner to such events, thereby leading to business disruption and/or financial losses.

While corporations – and society – will never be completely resilient to these risks, corporations will need to implement adaptation measures to minimize disruption from these events. This report examines these themes in more depth and provides proactive organizations with a four-step call to action to achieve climate resilience and overcome climate-related disruption by optimizing their climate risk mitigation approach.

WhitepaperNavigating Climate Threats and Proactive Mechanisms to Achieve Business Climate Resilience

Research Methodology To gain critical insight into the perceptions of large organizations with regard to their exposure to severe weather events, and to assess the investments and insurance models in place to manage climate-related risks, Everbridge commissioned independent research firm, Verdantix to conduct a comprehensive study. Verdantix undertook independent and anonymized interviews with 51 executives across compliance, finance, risk and sustainability/ESG management roles across large organizations. These organizations had at least $250 million in annual revenue and were located across seven industry sectors in the US and in select countries in Europe (see Figures 1-4). Verdantix gained insights from respondents about their organizations’ management of risks related to climate change, their perceived threats and consequences from climate change, and their investments, insurance, and other plans in place for critical event management related to climate change.

Figure 1. Target Industries

INDUSTRY ACHIEVED

Manufacturing 6

Energy & Utilities 9

Transport 6

Tech & Telecomms 8

Retail 7

Financial services 8

Education (university level) 7

Figure 2. Target Regions

COUNTRY TARGET ACHIEVED

USA 20 27

Europe (UK, France, Germany, Italy) 20 24

WhitepaperNavigating Climate Threats and Proactive Mechanisms to Achieve Business Climate Resilience

Climate risks are an increasingly prevalent business risk In May 2022, the World Meteorological Organization published a climate update establishing a 50:50 chance of the annual average global temperature temporarily reaching the 1.5ᵒC threshold for at least one of the next five years (see WMO Update: 50:50 chance of global temperature temporarily reaching 1.5°C threshold in the next five years). The urgent need for climate change adaptation requires organizations to integrate climate risk assessments into their business operations and leverage the value of insurance to strengthen adaptation and resilience strategies.

Verdantix defines climate change risk management as:

“The expertise, systems, and data that enable a firm to identify, mitigate, transfer, or retain climate- change-related risks across acute and chronic physical risks, as well as policy and regulatory risks.” (see Verdantix Strategic Focus: Improving Climate Resilience With Digital Solutions)

For organizations, the borderless nature of climate events means a high exposure to a broad spectrum of threats, ranging from direct physical risk to transition risks that are associated with the societal and economic shifts towards a lower-carbon future. To gain a clear view of climate-related risks, organizations should consider the following: acute hazards, chronic hazards, supply chain risks, financial vulnerabilities, and climate policies.

• Acute Hazards: Climate events such as storms, floods, and wildfires can change or reveal new information about future economic conditions or the value of real or financial assets. Consequently, a business’s financial health is at a higher risk of volatility.

• Chronic Hazards: Climate-change-related factors such as increasing global temperatures or rising sea levels might cause a change in investors’ expectations and sentiment about physical risk, which may result in abrupt chronic hazards.

• Supply Chain Risks: Climate events threaten the operability of global supply chains, which can have a severe impact on an organizations’ short- and long-term performance and equity risk.

Figure 3. Target Job Roles

JOB ROLE MINIMUM ACHIEVED

Compliance 10 11

Finance 10 11

Risk 10 10

Sustainability & ESG (Decision Influencers)

10 19

Figure 4. Target Firms Based on Annual Revenue

REVENUE MINIMUM ACHIEVED

More than $1bn revenue 20 28

$250m to $1bn revenue 20 23

WhitepaperNavigating Climate Threats and Proactive Mechanisms to Achieve Business Climate Resilience

• Financial Vulnerabilities: The interconnected impact of climate change on businesses can lead to a weaker financial system, due to limited information on climate change exposure, underestimation of climate risk, and an inadequate correlation of climate, economic, and financial risks.

• Climate Policies: The urgency of climate change leads governments to implement mandatory reporting of the sustainability performance of operational and financial activities. The rising number of climate- related regulations poses a high transition risk for organizations. For example, the increasing number of carbon disclosure mandates and changes in land use policies can increase an organizations’ exposure to litigation and regulatory risks.

Navigating and understanding these risks will become increasingly important due to shifts in demands from regulators and investors, as well as trends related to climate-related events. In order to minimize business loss and disruption, organizations will need to implement adaptation measures to minimize the negative impacts from these events.

WhitepaperNavigating Climate Threats and Proactive Mechanisms to Achieve Business Climate Resilience

“Our main threat comes from droughts and extreme temperatures. In the next two years, we expect a higher risk coming from rising sea levels for our coast-located assets.”

Sustainability Function, Energy & Utilities, UK-based

“We don’t see a threat of climate events to our business, but they’ll have an indirect impact through our customers. We expect the magnitude of these events to worsen in the next two years.”

Risk and Compliance Lead, Finance, UK-based

Businesses battle with increased exposure to climate-related events Severe weather events – such as drought, extreme temperatures, flooding, hurricanes, and wildfires – have been increasing in frequency and intensity across the globe. Everbridge data identifies a 66% rise in total wildfires and a 52% increase in unique weather events in the US between 2018 and 2021. Additionally, according to the US National Oceanic and Atmospheric Administration (NOAA) and National for Environmental Information (NCEI), there were $71 billion dollar weather and climate events in the US between 2018 and 2021 cost a total of $71 billion dollars, up from $46 billion dollars between 2008 and 2011 (see Billion-Dollar Weather and Climate Disasters, National Centers for Environmental Information).

Information provided by Swiss Re Institute shows an upward trend in insured and uninsured losses pertaining to weather-related events and natural catastrophes between 1970 and 2020 (see Figure 5) and an analysis by AON shows that global economic losses resulting from extreme weather events was at least $200 billion per year from 2012- 2022, with global economic losses reaching over $550 million in 2017 (see Catastrophe Insights Losses, AON). When organizations were probed about their views on extreme weather events, the following themes were identified:

Figure 5. Information provided by Swiss Re Institute shows increasing losses resulting from weather-related events.

WhitepaperNavigating Climate Threats and Proactive Mechanisms to Achieve Business Climate Resilience

Organizations consider extreme temperatures and flooding as the most significant climate threats.

The study identifies that organizations consider extreme temperatures and flooding as the biggest climate risk threats to their business. Both currently and over the next two years, over 80% of respondents indicated that they view extreme temperatures and flooding as ‘significant’ and 60% of respondents view them as ‘very significant’ threats (see Figures 6 and 7). Respondents view hurricanes, earthquakes, and wildfires as less significant threats, which could reflect the geographic presence of the respondents and their associated assets, or the fact that they have already implemented plans and critical systems to respond to these events.

Figures 6 & 7. Firms consider extreme temperatures and flooding as the most significant climate threats in the near term.

14%

20%

16%

22%

24%

14%

10%

27%

39%

57%

78%

69%

49%

41%

39%

20%

Wildfires

Earthquakes

Hurricanes

Drought

Flooding

Extreme temperatures

Very significant Significant Not Significant Don't know

12%

16%

18%

25%

27%

10%

14%

41%

31%

59%

33%

78%

69%

39%

49%

16%

39%

10%

Wildfires

Earthquakes

Drought

Hurricanes

Extreme temperatures

Notes: N=51 Data labels are rounded to zero decimal places. Percentages less than 7% are written as numbers. Source: Verdantix Research.

Flooding

How significant do you consider the threat of the following climate events to your business currently?

In the next 2 years, how significant a threat are the following climate events to your business?

WhitepaperNavigating Climate Threats and Proactive Mechanisms to Achieve Business Climate Resilience

Business and supply chain disruptions are perceived as the two leading consequences of extreme climate change, but awareness varies across sectors.

Climate-related events can lead to social disruption, exposing organizations to a broad spectrum of risks that need to be managed swiftly. Everbridge data highlights that in hurricane-affected states in the US, violent crime rates are 14% higher during hurricane events than at other comparable periods. When evaluating the consequences of extreme weather events, organizations consider business disruption and supply chain disruption as having the greatest impact (see Figure 8). Meanwhile, less than half of the respondents view cyber attacks, damage to physical assets, and worker shortages as high- impact consequences of climate change, while less than one-quarter perceive civil unrest – such as protests and displacement of employees or customers – as a top consequence. However, the link between critical climate events and cyber attacks (see Digital Dependencies and Cyber Vulnerabilities, Global Risks Report 2022, World Economic Forum) is more developed for certain sectors – such as the financial sector, where 76% of surveyed organizations view such attacks as a significant consequence (see Figure 8a). As organizations grapple with designing robust crisis management strategies for managing climate events, they must map and understand the correlation between different events and have a well-informed approach to adapt and develop climate-related resilience plans.

“I’d say that the main factors are reputational and financial risk. I’d also add some moral responsibility to study climate change.”

Sustainability Manager, Education, UK-based

We want to make sure we are leading the market. We want to set a benchmark for the industry, as we operate across global markets. We have some social responsibility in that sense.”

Risk and Compliance Lead, Finance, UK-based

Figures 8a. Business and supply chain disruptions are the two leading consequences of critical climate change.

Significance given to cyberattacks because of critical climate change per industry.

14%

63%

14%

22%

25%

13%

17%

43%

33%

25%

13%

17%

29%

22%

25%

14%

13%

50%

14%

11%

13%

43%

33%

17%

11%

13%

29%

Manufacturing

Transport

Retail

Energy & Utilities

Tech & Telecoms

Education (university level)

Financial services

Notes: N=51. Data labels are rounded to zero decimal places. Percentages less than 7% are written as numbers. Source: Verdantix Research.

1 Most Important 2 3 4 5 6 Less Important

Figure 8. Business and supply chain disruptions are the two leading consequences of critical climate change.

How would you rank the impact of the following events as a consequence of critical climate change?

Notes: N=51. Data labels are rounded to zero decimal places. Percentages less than 7% are written as numbers. Source: Verdantix Research.

10%

12%

27%

41%

18%

20%

12%

22%

24%

14%

16%

20%

25%

18%

25%

27%

20%

14%

39%

12%

24%

10%

39%

27%

16%

14%

Civil unrest (e.g., protests, displacement of people)

Worker shortages

Damage to physical assets

Cyber attacks

Supply chain disruptions

Business disruptions

1 Most Important 2 3 4 5 6 Less Important

WhitepaperNavigating Climate Threats and Proactive Mechanisms to Achieve Business Climate Resilience

Despite increasing pressure to manage climate risk, organizations fail to invest in climate adaptation strategies. The growing impact of climate events on businesses showcases a wide spectrum of risks that organizations must foresee and manage. As a result, many organizations have implemented climate risk management systems; however, these measures are often under-funded. The research found that:

Organizations face increasing pressure from all directions, particularly from corporate sustainability agendas and regulatory requirements.

The study found that a wide variety of internal and external factors influence budget allocation for catastrophic events, ranging from regulatory compliance to a strong sense of moral responsibility. In fact, 88% of participants – covering all respondents in the financial, retail

and transport sectors – highlighted corporate sustainability agendas as a significant driver of investment in solutions to help manage climate risks (see Figure 9).

Currently, the EU Taxonomy, EU Sustainable Finance Disclosure Regulation (SFDR) and the UK Climate Related Financial Disclosure Regulations all require some degree of climate-related disclosures, and the International Sustainability Standards Board (ISSB) recently announced that organizations will be required to use climate- related scenario analysis to report on climate resilience and to identify climate-related risks and opportunities to support their disclosures. With an expected wave of sustainability regulation coming in the next few years-such as the EU Corporate Sustainability Reporting Directive (CSRD) and the US Securities and Exchange Commission (SEC) Enhancement and Standardization of Climate- Related Disclosures, organizations will extensively face regulatory requirements to evaluate climate risk. Indeed, 74% of participants in the study highlighted regulatory pressure as a key factor influencing climate risk management budgets (see Figure 9).

Figure 9. Organizations face increasing pressure from all directions, particularly through the corporate sustainability agenda and regulatory requirements.

How significant are the following drivers for investment in climate risk management?

14%

22%

25%

33%

41%

43%

41%

43%

55%

35%

43%

33%

45%

35%

20%

25%

20%

22%

12%

Maintaining building portfolio value

Increasing rate of climate change incidents

Supply chain pressure

Investor pressure

Business resilience

Regulation (e.g., TCFD)

Corporate sustainability agenda

Very significant Significant Not Significant Don't know

Notes: N=51. Data labels are rounded to zero decimal places. Percentages less than 7% are written as numbers. Source: Verdantix Research.

WhitepaperNavigating Climate Threats and Proactive Mechanisms to Achieve Business Climate Resilience

Regulatory requirements, ISO frameworks, and internal sustainability requirements are driving investment in climate resilience.

In addition to corporate and regulatory pressure, organizations invest in climate resilience tools to align with internal and external sustainability requirements, such as ISO frameworks, corporate sustainability goals, and the UN Sustainable Development Goals (see Figure 10). To deal with, and adapt to, the complex threats associated with climate change, businesses need to implement bottom-up climate risk management systems and tools to deal with a wide range of regulatory, reputational, and financial risks.

Many organizations have dedicated individuals, insurance, funds, or tools to manage and support climate change activities.

A high number of organizations recognize the impact of severe weather events on business operations. While they might adopt either a proactive or reactive approach to climate change, the study found that 73% of respondents have a dedicated team or individuals to manage climate-change-related activities. Similarly, 71% of respondents have insurance or funds to help manage or respond to risks caused by climate change. In addition, 63% of respondents noted their use of tools to respond to climate change risk to support their business (see Figure 11). Taken together, this indicates that organizations are recognizing the need to plan – in some capacity – for climate-risk-related events.

Figure 10. Regulatory requirements, ISO frameworks and internal sustainability requirements are driving investment in climate resilience.

Do you draw upon any frameworks when considering investment in climate resilience (e.g., Sendai, ISO)?

Notes: N=51. Source: Verdantix Research.

0 5 10 15 20 25

Did not know/no comment

General emissions reductions

Internal Sustainability requirements

Applicable regulations (including TCFD)

ISO 140901, 140001, or other ISO (unspecified)

Net zero goals

UN Principles of Sustainable Investment (SDGs)

Neste

Number of Respondents Drawing Upon Frameworks

Figure 11. More than half of firms have dedicated individuals, insurance, funds or tools to manage and support climate change activities.

How would you describe your organization’s current exposure to and management of climate change risk?

31%

45%

63%

71%

73%

Climate change risk does not have a significant impact on our business operations

Climate change risk is having a significant impact on our business operations

We are using climate change risk tools to support our management of climate change risks

We have insurance/funds that help manage or respond to climate change risks such as climate events

We have dedicated teams/individuals to manage our climate change activities

Notes: N=51. Data labels are rounded to zero decimal places. Source: Verdantix Research.

Sustainability Manager, Energy & Utilities, UK-based

“For us, the TCFD and the UK water regulatory framework are the driving frameworks.”

WhitepaperNavigating Climate Threats and Proactive Mechanisms to Achieve Business Climate Resilience

Data analytics, advisory, and digital-tool-centered value propositions lead the way in brand recognition for climate risk management solutions.

When dealing with climate change, the study suggests a demand for digital climate risk data management and advisory services.

The broad impact of climate risk on various business areas requires solutions that help organizations understand their exposure and assist them in developing a response strategy. In this context, climate change risk management solutions that also have data functionality and advisory offerings have the highest levels of brand recognition (see Figure 12).

Figure 12. Data analytics, advisory, and digital tool centered value propositions lead the way in brand recognition for climate risk management solutions.

Are there any climate change risk management solution vendors that stand out in the market?

Notes: N=34; remainder of respondents did not provide a response. Source: Verdantix Research.

0 1 2 3 4 5 6 7

247 VelocityEHS

Schneider Electric SAP

Salesforce S&P Global

RMS Persefoni Planet X

Origami Risk Orchestrade

Moody’s Internal software

IHS Markit Google

EY EcoVadis

Deloitte Bloomberg

Baringa ARM

Figure 13. More than half of organizations have less than one million in budget to respond to catastrophic events.

How much budget are you allocating per year for responding to catastrophic events?

Notes: N=51. Data labels are rounded to zero decimal places. Source: Verdantix Research.

41%

20%

22%

10%

No budget at all

<$1m

$1 - $5m

$5 -10m

>$10m

More than half of participating organizations had less than $1m in budget funds to respond to climate events.

While organizations understand their exposure to climate change, budget allocation to cover for climate event costs is still low. The research found that more than half of participating organizations have less than $1m to respond to catastrophic events, and 41% of participants stated that they had no budget at all for catastrophic events (see Figure 13). The difference between the recognized relevance of climate events and the low budget allocated to these suggests a knowledge gap in the best practices and tools needed to integrate climate change risk management into overall business strategy.

Sustainability Manager, Energy & Utilities, UK-based

“I don’t have any particular vendor in mind. However, we collaborate with consulting companies and regulators that do employ a climate change risk management solution.”

WhitepaperNavigating Climate Threats and Proactive Mechanisms to Achieve Business Climate Resilience

“We don’t have a specific budget for catastrophic events. However, we need to guarantee water provision, so we do conduct asset- level risk assessment and budget plans to be able to respond in case of a critical climate event happening.”

Sustainability Manager, Energy & Utilities, UK-based

“We don’t have any specific climate risk insurance provisions, but mechanisms to ensure business continuance.”

Sustainability Manager, Energy & Utilities, UK-based

While there is no doubt about the value of risk management solutions, organizations struggle to land investment in climate change risk solutions.

Over half of all participants indicated that they did not have plans to invest in climate change risk management solutions, such as analysis tools for financial climate risk, natural catastrophe models, physical climate risk, and real-time weather risk. Respondents who are planning to invest in climate change risk management solutions are most likely to opt for natural catastrophe models and analysis tools (30%) or financial climate risk analysis tools (with 34% planning to invest) (see Figure 14).

Certain industries are more likely to invest in certain tools – for example, 55% of energy and utility businesses indicated plans to invest in financial climate risk analysis tools (see Figure 14a); 63% of financial services organizations noted that they would invest in natural catastrophe models (see Figure 14b); and 57% of retail businesses indicated that they would invest in real-time weather risk analysis tools (see Figure 14c). Others may be developing solutions in-house. Levels of investment might depend on an organization’s perception of the correlation between business operations and climate change. Additionally, the market for digital solutions to better manage risks from climate change is still nascent; it is possible that organizations are struggling to find and understand the solutions best suited to their business needs.

Figure 14. Most firms are not planning to invest in critical climate change risk management solutions.

What are your firm’s investment plans for the following critical climate change risk management solutions in the next twelve months?

Notes: N=51. Data labels are rounded to zero decimal places. Percentages less than 7% are written as numbers. Source: Verdantix Research.

20%

12%

22%

20%

14%

24%

12% 22%

10%

20%

37%

35%

51%

39%

18%

20%

10%

Physical climate risk analysis tools (e.g., Jupiter Intelligence)

Natural catastrophe models and analysis tools (e.g., Swiss Re)

Financial climate risk analysis tools (e.g., Copperleaf Analytics)

Have software, plan to invest further No software, plan to invest Have software, no further plans to invest No software, no plans to invest

Don’t know

Real-time weather risk analysis and mitigation tools

(e.g., The Weather Company [IBM])

WhitepaperNavigating Climate Threats and Proactive Mechanisms to Achieve Business Climate Resilience

What are your firm’s investment plans for the following critical climate change risk management solutions in the next twelve months?

Figure 14a. Over half of energy & utility firms plans to invest in climate risk analysis tools.

Notes: N=9. Data labels are rounded to zero decimal places. Percentages less than 7% are written as numbers. Source: Verdantix Research.

11%

22%

33%

11%

22%

11%

33%

22%

11%

44%

22%

11%

22%

Physical climate risk analysis tools (e.g., Jupiter Intelligence)

Natural catastrophe models and analysis tools (e.g., Swiss Re)

Financial climate risk analysis tools (e.g., Copperleaf Analytics)

Have software, plan to invest further No software, plan to invest Have software, no further plans to invest No software, no plans to invest

Don’t know

Real-time weather risk analysis and mitigation tools

(e.g., The Weather Company [IBM])

Figure 14b. Majority of financial services firms plan to invest in natural catastrophe models.

Notes: N=8. Data labels are rounded to zero decimal places. Percentages less than 7% are written as numbers. Source: Verdantix Research.

13%

63%

25%

13%

63%

13%

50%

25%

50%

25%

Physical climate risk analysis tools (e.g., Jupiter Intelligence)

Financial climate risk analysis tools (e.g., Copperleaf Analytics)

Natural catastrophe models and analysis tools (e.g., Swiss Re)

Have software, plan to invest further No software, plan to invest Have software, no further plans to invest No software, no plans to invest

Don’t know

Real-time weather risk analysis and mitigation tools

(e.g., The Weather Company [IBM])

Figure 14c. Over half of retail firms would invest in real-time weather risk analysis tools.

Have software, plan to invest further No software, plan to invest Have software, no further plans to invest No software, no plans to invest

Notes: N=7. Data labels are rounded to zero decimal places. Percentages less than 7% are written as numbers. Source: Verdantix Research.

14%

43%

29%

14%

29%

57%

29%

43%

29%

Natural catastrophe models and analysis tools (e.g., Swiss Re)

Physical climate risk analysis tools (e.g., Jupiter Intelligence)

Financial climate risk analysis tools (e.g., Copperleaf Analytics)

Real-time weather risk analysis and mitigation tools

(e.g., The Weather Company [IBM])

WhitepaperNavigating Climate Threats and Proactive Mechanisms to Achieve Business Climate Resilience

Breadth of capabilities and interoperability are the main purchasing criteria for investment in climate change risk management solutions.

The broad scope of climate-change-related risks requires a comprehensive solution. During the interviews, the majority of respondents identified breadth of capabilities and the ability of a solution to integrate with existing tools as the most important criteria for investment (see Figure 15).

This reflects a high demand for tools that offer a blend of solutions and allow for comprehensive management of climate risk factors. Additionally, buyers look for adaptive solutions that can complement already implemented tools and facilitate climate risk management across multiple business areas and operations.

“We also plan to invest/ develop emissions management and ESG and sustainability reporting tools.”

Global Head Advisory, Financial Services, UK-based

Figure 15. Breadth of capabilities and interoperability are the main purchasing criteria for investment in climate change risk management solutions.

How significant are the following purchasing criteria when choosing to invest in a climate change risk management solution?

Notes: N=51. Data labels are rounded to zero decimal places. Percentages less than 7% are written as numbers. Source: Verdantix Research. Verdantix 2022 Global Corporate Survey. N=400.

22%

25%

27%

35%

45%

53%

35%

33%

47%

37%

49%

16%

22%

29%

12%

10%

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10%

Existing client base/success stories of vendor

Ability of solution to work with or integrate with insurance products

Brand recognition of vendor

Price of solution

Ability of solution to integrate with existing solutions and systems

Breadth of capabilities offered by the solution

Very significant Significant Not Significant Don’t Know

WhitepaperNavigating Climate Threats and Proactive Mechanisms to Achieve Business Climate Resilience

While traditional insurance to cover climate events remains the norm, there is opportunity for a new resilience model. Insurers play a key role in transferring risk, which helps organizations build operational, financial, and regulatory resilience against complex climate-change-related events. However, due to the uncertain nature of these events, traditional insurance and reinsurance models might overlook risk and may delay the dispersal of funds, preventing customers from being able to react in a timely fashion to these events. The research found that:

Over two-thirds of organizations had a loss caused by a climate change event in the last two years.

Over two-thirds of organizations had a loss caused by an extreme weather event in the two last years, with most submitting an insurance claim for these events (see Figures 16 and 17). As organizations experience more climate-change-related events, and thus likely to submit more insurance claims, they will look for insurance offerings to cover the severity and impact of these events.

Figure 16. 69% of firms had a loss caused by a critical climate change event in the last two years.

Have you suffered a loss as a result of a critical event caused by climate change in the last two years?

Notes: N=51 Source: Verdantix Research.

69%

31%

No Yes

Figure 17. Most firms submitted an insurance claim for a climate-related incident in the last two years.

Have you submitted an insurance claim to cover a climate-related incident in the last two years?

Notes: N=16 Source: Verdantix Research.

No Yes

88%

13%

WhitepaperNavigating Climate Threats and Proactive Mechanisms to Achieve Business Climate Resilience

No organizations that filed insurance claims received payment within a week.

The interviews found that of the organizations that submitted an insurance claim to cover a critical climate change event in the last two years, none received payment immediately, within 48 hours of the event or within one week of the event. Although 71% of businesses that submitted an insurance claim received payment within one month of the event, 21% only received payment within three months and 7% were obliged to wait six months (see Figure 18). This delay could significantly hinder a firm’s emergency response efforts and leave it more vulnerable to cyber attacks and social disruption.

Half of organizations highlighted the complexity of proof of loss and communication with the insurer as significant challenges during the claim process.

When dealing with an insurance claim after an extreme weather event, the majority of participants identified proof of loss and communication as significant factors impacting their success in claiming insurance (see Figure 19). An immediate response to severe weather events will ease some of the pain points they have around the claim process.

Figure 18. No organizations claiming insurance received payment within a week from the event.

How quickly did you receive payment from the insurer after a critical climate change event?

Notes: N=16. Source: Verdantix Research.

21%

71%

Within six months from an event

Within three months of an event

Within one month of an event

Figure 19. Half of organizations highlighted complexity of proof of loss and communication with the insurer as significant challenges during claim processes.

How significant were the following challenges when dealing with the insurance claim?

Notes: N=16. Source: Verdantix Research.

29%

36%

21%

29%

21%

43%

36%

21%

29%

36%

Lack of understanding of reimbursement process

Insurance coverage not aligned with needs

Communication with the insurer

Complexity of proof of loss

Very significant Significant Not Significant Don't know

WhitepaperNavigating Climate Threats and Proactive Mechanisms to Achieve Business Climate Resilience

More than half of organizations considered inadequate insurance coverage as a key obstacle to manage climate risk.

According to the research, one challenge of managing climate risk is limited insurance coverage offerings. 55% of all organizations, rising to 76% in the financial services sector, consider inadequate insurance coverage to be a ‘significant’ or ‘very significant’ factor when managing climate risk (see Figure 20). Additionally, due to the global nature of severe climate events, climate risk management has a strong regional component, showing the correlated role played by governments and the private sector in understanding and putting into action effective management systems to deal with such events.

Figure 20. More than half of organizations considered inadequate insurance coverage and as a key obstacle to manage climate risk.

How significant are these challenges when dealing with climate risk?

10%

16%

24%

27%

39%

49%

22%

39%

37%

43%

51%

37%

39%

25%

37%

25%

24%

20%

Lack of affordable insurance products

Poor access to response resources

Limited budgets

Lack of suitable insurance products

Inadequate insurance coverage

Limited personnel

Very significant Significant Not Significant Don't know

Notes: N=51. Data labels are rounded to zero decimal places. Percentages less than 7% are written as numbers. Source: Verdantix Research.

“It also depends on the magnitude of the event and the region – the country’s own capacity to respond to that event.”

Global ESG & Sustainability Director, Energy & Utilities, US-based

“I think the market regarding climate risk events and insurance is still maturing. We now rely on traditional insurance and accrual of funds, but I don’t know if we’ll use any parametric insurance.”

Sustainability Manager, Energy & Utilities, UK-based

“For now, we’ve been able to manage climate-related events with our funds, but as the severity of these events increases, I expect a higher need for climate-related insurance.”

Executive Director, Sustainability, Education, US-based

“It [alternative finance] is a new term which not many people are aware of; we don’t have any mechanism as such. I do have a knowledge about it; I would say crowdfunding is a great example of alternative finance, basically, a non- traditional way of finance.”

Director of Finance, Manufacturing, US-based

WhitepaperNavigating Climate Threats and Proactive Mechanisms to Achieve Business Climate Resilience

While traditional insurance remains the norm, around a third of organizations are likely to pursue alternative finance or parametric insurance.

While over half of respondents indicated that they would use traditional insurance to insure against climate events, approximately one-third of organizations noted that they were likely or very likely to use alternative finance and/or parametric insurance as well (see Figure 21). However, alternative finance was also identified as a nascent concept in the interviews. About half of the respondents did not know what alternative finance was, and those who were familiar with the term did not agree on what it meant. Participants’ unfamiliarity with alternative finance could explain the limited number of organizations indicating that they were likely to use different options to traditional insurance. Additionally, changing perceptions and understanding of the business impact of climate change strengthens the link between traditional insurance and climate risk. Indeed, 41% of respondents expect a need for wider climate-change-related insurance coverage as climate risk exposure intensifies (see Figure 22).

Figure 21. While traditional insurance remains the norm, around a third of organizations are likely to pursue alternative finance or parametric insurance.

How likely are you to utilize the following insurance mechanisms to insure against climate risk events?

Notes: N=51. Data labels are rounded to zero decimal places. Percentages less than 7% are written as numbers. Source: Verdantix Research.

22%

27%

29%

33%

39%

37%

39%

43%

20%

33%

25%

18%

20%

Parametric Insurance

Alternative finance

Accrual of funds (self-insure)

Traditional insurance

Highly likely Likely Unlikely Don’t know

Figure 22. 31% of firms expect further demand for wider climate change-related insurance coverage while 27% remains unsure.

Do you anticipate climate risk exposure to trigger a need for a wider climate change-related insurance coverage?

Notes: N=51 Source: Verdantix Research.

No Yes Unsure

41%

31%

27%

WhitepaperNavigating Climate Threats and Proactive Mechanisms to Achieve Business Climate Resilience

Four Steps To Create a Resilient Enterprise Through Climate Adaptation

Organizations need to find a way to achieve climate resilience and overcome climate-related disruption by optimizing their climate risk management approach. Those aspiring to do this will need to:

01 Raise awareness of the relevance of severe climate events for their business.

The consequences of extreme weather events are severe, causing not only business disruption and financial instability, but damage to environmental and social ecosystems. As the frequency and severity of climate-related events increase, organizations will need to better understand their climate-related risks and develop plans to mitigate and manage these and to build resilience. They will also need to evaluate alternative ways to finance their emergency response efforts.

02 Ensure insurance product decisions integrate climate risk data accurately and sufficiently.

Due to the uncertain nature of extreme weather events, organizations need to develop a comprehensive strategy to mitigate business- related risks using a variety of solutions as traditional insurance and reinsurance models might underestimate risk, which would jeopardize a firm’s ability to react to these events (see Verdantix Smart Innovators: Critical Event Management). While many have often relied on the use of emergency response plans and traditional insurance, due to the increase in severe weather events, they will need to implement novel approaches to better manage these risks and increase business resilience. For example, critical event management (CEM) solutions, which are designed to aid organization-wide, cross-functional responses to critical events, can allow organizations to manage and react to risk in real-time. Additionally, incorporating climate risk into an insurance product will provide organizations with a better understanding of which of their assets are most vulnerable, and allow them to make business decisions accordingly, whether that means investing in climate mitigation measures or considering divesting at-risk assets.

03 Leverage the value of climate risk management practices for regulatory compliance.

Organizations are under increasing pressure from regulations based on the Task Force on Climate- Related Financial Disclosures (TCFD) framework, such as the EU’s CSRD, the UK’s Climate-Related Financial Disclosure regulations, and the US SEC’s proposed climate disclosure rule. The four core elements of the TCFD framework – governance, strategy, risk management, and metrics and targets – require organizations to evaluate, plan, and measure metrics related to climate risk. Organizations can leverage climate impact assessments, methodologies- such as those covered by alternative finance- and digital tools such as CEM to meet TCFD-aligned mandatory disclosure regulations, which require organizations to disclose the process used to identify and manage climate risks.

04 Adopt a proactive approach to climate change that ensures long-term business resilience.

Organizations need a multi-pronged approach to proactively manage climate-related risks. By using CEM solutions, they are able to evaluate a severe weather-related event in real time, allowing them to proactively manage the associated risks. Additionally, a climate risk assessment is not only a chance to adapt, but an opportunity to ensure the protection of assets in the long term. When organizations have a good understanding of their climate-related risks, they can consider options from reevaluating assets based on risk exposure or using available capital to better utilizing capital to protect certain assets and adapting their response accordingly. It is increasingly clear a combination of CEM solutions, climate risk assessments, and alternative finance mechanisms is the best way to prepare for the future and ensure business resilience and adaptation to climate change.

WhitepaperNavigating Climate Threats and Proactive Mechanisms to Achieve Business Climate Resilience

About Everbridge Everbridge, Inc. (NASDAQ: EVBG) is a global software company that provides enterprise-grade software-as-a-service applications that automate and accelerate organizations’ operational response to critical events to Keep People Safe and Organizations Running™. For two decades Everbridge has partnered with customers and grown software and service capabilities to meet their needs. Today, Everbridge provides a single unified platform that allows organizations to manage the full lifecycle of a critical event. Everbridge understands the range of threats faced by organizations and communities and how critical it is to adapt within this volatile global threat landscape. Fostering resilience can also be a competitive advantage. Everbridge specializes in five core resilience solutions to meet these needs: Business Operations, Digital Operations, People Resilience, Public Safety, and Smart Security. Over 6,200 global customers rely on the company’s Critical Event Management (CEM) platform to quickly and reliable aggregate and assess thread data, locate people at risk and responders able to assist, automate the execution of pre-defined communications processes.

For more insights visit Everbridge.com, read the company blog, and follow us on LinkedIn and Twitter.

Get in touch to learn about Everbridge, empowering resilience.

WP-EN-Navigating Climate Threats And Proactive Mechanisms_Letter_03.20.23

About Everbridge Everbridge, Inc. (NASDAQ: EVBG) empowers enterprises and government organizations to anticipate, mitigate, respond to, and recover stronger from critical events. In today’s unpredictable world, resilient organizations minimize impact to people and operations, absorb stress, and return to productivity faster when deploying critical event management (CEM) technology. Everbridge digitizes organizational resilience by combining intelligent automation with the industry’s most comprehensive risk data to Keep People Safe and Organizations Running™.

For more information, visit Everbridge.com, read the company blog, and follow us on LinkedIn and Twitter.

[WHITEPAPER] Navigating Climate Threats And Proactive Mechanisms To Achieve Business Climate Resilience

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