Insights from our Global Food and Beverage Webinar March 2025
Our 2024 Global Food, Beverage and Agriculture Risk Report revealed that 71% of respondents see climate change as the most significant environmental risk to their business. So how can food and beverage businesses respond to these challenges and increase their resilience in a changing world?
In the webinar, specialists from Willis and global beverage business Diageo explored ways to manage and mitigate both physical and transitional climate risks while generating opportunity and growth. We have summarized the key takeaways from the discussion below.
01
Climate risk includes physical risks related to acute (such as tropical cyclones and extreme flooding) and chronic climate hazards (such as heat stress, drought and poor water availability) –and transition risks associated with moving to a low-carbon economy. The latter can include the impact of policies, green taxes, decarbonization targets and changes in technology and consumer demand. How the sector responds to both types of risk will have a significant bearing on food systems and the macro-economy, as well as the competitiveness and resilience of individual food and beverage businesses. In aggregate, physical risk is increasing globally, however risk exposure is unevenly distributed. Businesses can reduce their risk exposure by reducing their contribution to climate change, and by avoiding, mitigating, and/ or transferring risks.
02
Identifying risks is often a tiered process, especially for companies with a large number of sites. A good starting point may be undertaking a screening exercise which flags sites with the highest risks and identifies any critical thresholds where your business becomes less efficient, such as the maximum and minimum temperatures for growing crops. From there you can carry out a more detailed assessment and focus on generating risk narratives, risk registers and risk quantification. It's also a valuable exercise to explore climate risks in your value chain. This could include your inbound supply chain, transport networks and even local communities.
03
Businesses should view climate transition as a systemic change with the potential to have far-reaching consequences. For example, if a carbon tax is introduced on electricity generation, the risk isn’t just that additional tax amount paid on electricity used. It’s also what the future cost of electricity will be if the carbon tax (along with other transition drivers) ultimately decarbonizes the electricity network.
Climate risks are interwoven and influence one another. For example, changing consumer preferences such as a preference for more sustainable products could impact food and beverage business models. Changes made to product mix may in turn shift exposure to physical risk, such as due to changes in the composition and geography of raw agricultural commodities or weather-driven impacts on demand. In short, risks originating at one location can become rapidly transmitted throughout global value chains and the financial system, showing up on the bottom line of food and beverage businesses, and that of their insurers, investors, and lenders.
04
It can be helpful to understand which risks will occur externally no matter what you do, and separate them from those you can control. Risks outside your control include increasing electricity costs or changes in consumer demand for a product. But many risks are within your power to influence. For example, if you are considering investing in low carbon technology, you can choose when to invest, which technology to invest in, or decide not to invest at all.
Once you have identified what you can and can’t control, you can take a step-by-step approach to develop a risk management strategy. Assess and quantify the risks you can’t control first and then look how the actions which are within your control can either exacerbate or mitigate the risk. Each of those potential actions should be assessed through the same financial modelling and quantification tools to understand which investment or business options would be most cost effective in reducing the external risk if it arises, and also to understand the impact if the risk doesn’t arise. A good financial model should be able to take all those various assumptions, and provide a high-level comparison of the financial impact each option could have on the business, including its strategic goals outside climate.
05
Climate risk is a financial risk which businesses should treat as they would any other financial risk. The dynamic nature of climate risk requires risk owners to be active, agnostic, and agile in managing with the risks they face. Where financial institutions increasingly incorporate climate risk into their portfolio management, due diligence, and underwriting terms, businesses who demonstrate effective risk management will increase lender and investor confidence, making it easier for them to raise capital and obtain insurance.
Integrating climate risk into existing governance and risk management processes and frameworks, such as sustainability reporting, continuity planning, CapEx planning and procurement is a good starting point. Bringing together a cross-functional group of people with expertise from across the business ensures a consistent understanding of the business’ risk profile and can be invaluable in addressing climate risk management. For many food and beverage businesses dependent on the supply of raw commodities, the most material climate risks will originate in the upstream value chain. Because of this, embedding climate risk into procurement strategy, portfolio management, and due diligence will be especially vital.
06
As a starting point, past loss events, such as outages caused by extreme heat, will highlight vulnerabilities that can be addressed immediately. In other cases, use data and “what if” scenario exercises in a strategic way to help illuminate latent opportunities and risks that may merit a management response.
For data to be meaningful, it needs to relate to the vulnerabilities and opportunities your business faces. To be impactful - and to avoid duplication - data needs to be able to be leveraged across functions, from risk to treasury. It also needs to be easily understood, transferable, and actionable – you need to be able to use the insight data afford to develop risk and sustainability strategies that enable your business to be more resilient.
07
Once you’ve collected data and assessed risks, focus on developing cost-effective risk management strategies. This could mean transferring the risk, preventing it from occurring or making adaptations to increase resilience such as clearing vegetation more frequently to prevent wildfires. For some climate risks, actions will be clear cut, but for larger risks, there may be a range of possible risk management strategies. Tools such as to our Connected Risk Intelligence decision making platform can help you conduct a scenario-based assessment of across your risk portfolio to pinpoint risk strategies represent the best return on investment, including arbitrage and diversification opportunities.
08
Engaging with stakeholders can help develop more robust business continuity plans and reduce the potential impact of catastrophic climate events on your business. Supplier partnership is key. Joint business plans, where both parties outline what they want to achieve as a partnership, can provide a powerful way of supporting and collaborating with suppliers. They provide opportunities for businesses and suppliers to learn from one another, stabilize risk, and decarbonize operations.
Businesses also need to be working alongside other key players such as local communities, governments and NGOs. Water stress and its effect on crops is a key climate change risk where businesses need to work in partnership with one another. Water is a shared resource, so unless all the users of water in a basin take steps to improve water use efficiency, you’re missing opportunities to mitigate the risk in a more effective way.
09
Climate risk is an evolving risk that requires constant focus. As the technology around climate resilience changes, our understanding of the risks will evolve, meaning the actions businesses need to take to mitigate them will also change. There’s no finish line where you can put down your tools when it comes to climate resilience. That should be viewed as a positive because it means you’re becoming more sophisticated in your approach to managing climate risk.
10
Working in partnership with risk and climate specialists can help food and beverage businesses get an understanding of specific hazards likely to affect them, how climate change could change their vulnerability to those hazards, and how material the impact may be.
Using Climate Diagnostic and quantification modelling capabilities such as those provided by our Climate Practice, businesses can look beyond present-day risks and project a range of climate change scenarios over different timeframes and emission scenarios. For example, by looking at a coastal plant in 2030 and 2050 and mapping what could happen if sea levels continue to rise at the current rate or at a higher rate, or by looking at the effects of an extended drought on crop production. This can help estimate financial losses and assess financial viability, as well as exploring ways to control and mitigate future risks.
