Food and beverage futures
Climate has a huge impact on the sector, affecting everything from where crops can be grown to the risk of extreme weather events, such as flooding and droughts. 71% of respondents to WTW’s Global Food, Beverage and Agriculture Risk Report 2024, named climate change as among the top environmental factors posing the greatest risk to their business.
In this blog, we look at the industry’s climate risks, what you can do to manage and mitigate them and how analytics can help you assess and manage the impact on your business.
Climate change is leading to shifts in temperature and rainfall patterns and altering the likelihood and magnitude of extreme events. As climate change accelerates, these changes will create deeper long-term impacts across the food and beverage value chain, not only affecting production assets, but also key inputs and dependencies, such as nature, water, and raw commodities.
Failure to proactively manage climate uncertainty could expose food and beverage companies to higher costs and loss of revenue. To get ahead of these risks and meet evolving stakeholder expectations, food and beverage businesses should consider climate risk in decisions about facility location, raw material sourcing and product demand planning.
Businesses are becoming increasingly interconnected and supply chains more complex. A climate event in one location has the potential to affect the whole supply chain. Some parts of the supply chain may be more at risk from climate related impacts than others.
Companies are increasingly required to disclose their preparedness, and long-term plans and strategy around climate risk, both in terms of financial risk and their impact on the environment. Climate risk reporting rules increasingly require businesses to take account of the risks their suppliers are exposed to.
Many food and beverage companies don’t have the tools or data to understand how climate change will affect them at each of their locations. This exposes them to heightened risks of asset stranding, business interruption and input cost volatility. Left unmitigated, these risks could affect asset valuation and lead to erosion of earnings.
Understand your risks: Consider which of your assets are most at risk from different climate events now and in the future and how these risks will impact your business, supply chain and customers. Make sure you understand what your suppliers are doing to mitigate their risks – ask to see their business continuity plans and check how their plan aligns with yours.
Use analytics to model the risks: Being able to model the impact of climate change in all your locations over time and under various climate scenarios provides insights to help plan, adapt to and mitigate the risks.
Gather and report data: Gathering and analyzing data helps you understand and measure the risks. Put systems in place to gather accurate and verifiable data at your key locations and from your suppliers. Make sure you know what information you’re required to report on.
Set your strategy: Businesses are increasingly being asked to disclose their long-term plans and strategy around climate risk.
Develop a business continuity plan: Include how you’ll respond to climate incidents. Review and audit the plan regularly to make sure it’s up to date and fit for purpose.
Review your insurance: Review your current coverage to make sure it’s adequate to cover existing and emerging risks. Consider alternative risk transfer solutions such as parametrics if traditional insurance is unavailable or inefficient.
WTW offers a range of consultancy, modeling and analytic tools that can help food, beverage and agriculture businesses keep risk under control, act on opportunities, and digitize climate risk management and disclosure workflows.
Global Peril Diagnostic (GPD) is an interactive tool that provides a way of assessing your business against current climate and natural catastrophe risks using address and location information. Using GPD can help you:
Climate Diagnostic provides scenario-driven insight regarding the current and projected exposure of individual asset locations to a range of climate risk factors, today and in future. Using globally consistent data, Climate Diagnostic enables businesses to identify concentrations of risk, prioritise risk management action, perform due diligence and meet disclosure requirements.
WTW’s web-based dashboard enables stronger company-level oversight and management of climate risk. It integrates data from WTW’s climate analytics suite with your risk engineering data to provide a comprehensive view of risks and potential mitigations. The dashboard can also be customized to look more deeply at individual risks and adjust your strategy accordingly. For example, it can show:
Climate Quantified is a self-service tool that enables you to translate transition and physical risk into financial impact. Combining high-resolution climate data with WTW’s risk engineering and financial expertise, it helps to quantify the financial risks of climate change across your operations and supply chain. Financial impact is summarised in an executive summary page and an automatically generated report.
WTW’s Crop Risks and Opportunities Platform (CROP) is a global geospatial dataset that can help you enhance supply chain resilience by enabling scenario-based assessment of the exposure of your raw commodity suppliers to climate risks. CROP integrates models of future yield, prices, cultivated area, and market suitability for producing major crops today and in the future under a range of climate scenarios, based on a comprehensive set of global land and climate-related data. WTW can provide data from CROP directly to you, or we can analyze it for you as part of a consultancy service.
Climate change has the potential to impact property, food production and every part of the supply chain. Mandatory disclosure is increasing, and businesses are being required to report on their climate change strategy.
WTW’s end-to-end consultancy and analytics solutions can help you plan, adapt and improve your climate resilience into the future, providing insights into the climate risks facing your business and the potential impact under a range of climate scenarios.
For smarter ways to managing your climate risks, please reach out to our specialists today.
