Climate Change & Supply Chain Resilience
Climate Impacts on Supply Chains
Climate change is already causing significant supply chain issues around the globe as natural disasters, droughts and sea level rise impact every aspect of business operations. Every sector is facing drastic risk increases ranging from crop failures to primary resource delays or fuel and energy shortages. These shocks pose significant risks not only to individual businesses but also to global food security, energy stability, and economic growth.
NASA’s climate research shows that increasing global temperatures will continue to cause abnormal climate fluctuations, leading to record-breaking heatwaves, severe floods, prolonged droughts, and destructive wildfires year-on-year. These climate impacts interfere directly with logistics and production, for example:
Floods damaging factories, mines, and transport lines interrupt both production and distribution of materials, equipment, and products.
Droughts impacting crop yields and water availability reduce production capacity and lead to missed capital. For example, 2020 droughts in the UK caused record-breaking drops in wheat production. In 2023 dry period central America caused exceptionally low water levels in the Panama Canal, significantly delaying Atlantic-Pacific delivery schedules.
Wildfires, snowstorms, and tropical storms reducing visibility and halt land and air transportation, as seen in North American wildfire events and hurricane events.
According to the 2024 Everstream Risk Report, extreme weather events are the number one logistical disruptor. Every year, billions of dollars are lost along supply chains dur to climate-related disruptions. Everstream have identified significant increases in disruption rates. Weather disasters that used to seriously impact operations every few months now happen every three weeks in the U.S. alone. Each day that shipments are delayed results in millions in costs for companies.
The UK’s “Resilient Supply Chains” briefing outlines the multiple nodes where climate disruptions strike:
Designing Resilient Supply Chains
In 2022, the UK’s Climate Change Committee released a “Resilient Supply Chains” document, outlining growing operations risk for the UK and internationally, and provided recommendations to address challenges. The report highlights the need for companies and the government to transform supply chains from reactive networks into proactive, adaptive systems.
Business-Level Resilience Strategies
1. Buffering Strategies
Geographic diversification of suppliers to reduce reliance on any single climate-affected region.
Inventory buffers and alternate sourcing, to absorb delays and mitigate price shocks during logistical disruptions.
Redesigning products to reduce dependency on unique inputs will make it easier to quickly change supplier during a disruption. Depending on one supplier increases cost vulnerability if any disaster/delay occurs.
2. Bridging Strategies
Collaboration with suppliers and infrastructure providers to jointly manage climate risks. Communication along supply chains increases trust and preparedness when disruption eventually occur.
Financial support or long-term contracts to help suppliers invest in resilience (e.g., flood protection, water efficiency). Long-term contracts provide more certainty and security for companies and suppliers to invest in operations protection.
Digital monitoring of climate and compliance risks across tiers of the supply chain. Identify the largest risk areas and work to mitigate and diversify those threats first.
Government’s Role in Resilient Supply Chains
Governments play a critical role in enabling system-wide resilience:
Stress testing national supply chains and identifying geographic vulnerabilities within their own borders that can be addressed.
Mandating climate risk reporting by major businesses and infrastructure providers to physically protect workers from climate risk and national economic risk.
Investing in early-warning systems and disseminating real-time weather and disruption forecasts to warn the public and businesses of incoming weather events.
Ensuring resilient public procurement, embedding climate adaptation standards into contracts to create more resilient building and products.
Conclusion
Failure to access and mitigate climate risks along supply chains will inevitably result in excessive costs for businesses. Whether a company is operating at a local or global scale, climate disasters rates are increasing everywhere. Investing in climate resilience through diversified sourcing, predictive analytics and collaborative planning will reenforce supply chains and help them to thrive going forward.