FM Global urges Asia-Pacific leaders to retain focus on climate risks

Recovery from the Covid-19 pandemic and preparation for a potential second wave is clearly top of the agenda currently for business leaders across the Asia-Pacific region and worldwide. But leaders in the Asia-Pacific region in particular must continue to focus on the impact of climate change and invest in loss prevention, business continuity and risk management and mitigation measures to protect their businesses as they pursue the recovery, or face potentially catastrophic damages, Alex Tadmoury, senior vice-president, division manager of FM Global’s Asia-Pacific operations, has warned. “Disaster events don’t wait for an invitation. Real-world property damage and related costs have led to increasing awareness of climate risk in Asia-Pacific. Our challenge is to ensure that while economic recovery takes the forefront, businesses continue to protect themselves from the ever-present risk of natural catastrophes,” said Mr Tadmoury. FM Global’s recent survey of CEOs and CFOs of the world’s largest companies, with more than $1bn in annual revenue, found that Asia-Pacific businesses are better prepared to address the adverse financial impacts of climate risk than their global peers. The survey of hundreds of business leaders, carried out before the current pandemic hit, found that at least 34% of Asia-Pacific executives believe their organisation is significantly exposed to climate risk, compared to 15% of respondents from North America and 6.9% in Europe. Further, 57% of Asia-Pacific respondents said that addressing climate risk was a high priority in their company, compared to 29% in North America and just 14.9% in Europe. Mr Tadmoury pointed out that this should not really come as a surprise because, in 2018 for example, almost half of the 281 natural disaster events worldwide occurred in the Asia-Pacific region, including eight of the ten deadliest. “Indonesia alone was struck by two tsunamis and one earthquake in quick succession, while Japan, perhaps the most disaster-prepared country in the world, experienced unprecedented flooding followed by an anomalous heatwave,” he said. The impacts of disaster have been outpacing the region’s economic growth, rising as a proportion of GDP, from about 0.1% in the 1970s to about 0.3% in recent decades. This trend will continue, said Mr Tadmoury. “Business exposure to floods, droughts, storm surges, tropical cyclones and extreme temperatures is projected to increase as climate change causes extreme temperatures and variability in rainfall across the region. And while enhanced technology and better availability allows for smarter forecasting, disasters triggered by climate change are increasingly complex and unpredictable,” he said. “The current Covid-19 pandemic and its economic fallout, while not directly impacting property and infrastructure in the same way as earthquakes, floods or wind events, has the potential to compound the impact of climate risks due to the restrictions on movement and essential services,” added Mr Tadmoury. “FM Global’s survey found that faced with this evolving 'riskscape', business leaders are predicting an increase in their responsibilities, with most agreeing that executive management and directors of companies will be accountable for any adverse financial impact on their business due to climate events. This marks a clear shift in thinking towards increasing focus on loss prevention strategies to mitigate potential climate risk to property and infrastructure,” he continued. Mr Tadmoury suggested four key steps that Asia-Pacific’s business leaders need to take to secure themselves against the impact of climate change-related risks as they navigate their way out of the pandemic. “Those that stay the course can take four steps to manage their business in this evolving riskscape: increase capital allocation, enhance their disaster recovery and business continuity plans, invest more in property loss prevention measures, and reassess their supply chain risk management strategy,” he said. Mr Tadmoury said that companies should consider allocating more capital to reduce the financial risk related to potential natural disasters and have the ability to factor in uninsured costs to avoid volatile balance sheet situations. According to FM Global data, companies that follow this path tend to produce a significant return on investment. According to the mutual insurer, for every $1 a company spends to protect structures from wind- and flood-related damages, the estimated property loss and business disruption exposures decrease by an average of $105. “Business leaders can now also apply valuation-based models to help determine the projected total financial impact of a major property loss event. The data produced by such models can paint a good picture of a natural disaster’s possible impact on market share, investor confidence and missed growth opportunities,” he said.

FM Global urges Asia-Pacific leaders to retain focus on climate risks

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