Nov 11, 2022
The Rising Cost of Global Flood Risk
Challenge
Proximity to water has historically been an economic advantage for many cities, but today, some of the world’s most densely populated urban areas are confronting the destructive power of water via rising tides and increased flood risks. Globally, over 40% of the world’s urban population and $21.1 trillion of GDP will see an increase in flood risks by 2050, according to PwC. In England alone, for example, nearly 200,000 homes and businesses are at risk of being lost by the 2050s due to rising seas, according to Ocean & Coastal Management journal.
Impact
Urban infrastructure must be well-designed and its growth must be carefully managed or the climate risks may greatly outstrip the benefits, according to PwC Global Climate Leader Emma Cox.
Managing the complexities of physical climate risk is now something every business leader must consider, says Colm Kelly, PwC’s Global Leader for Corporate Sustainability. Second-order effects can be a blind spot and need to be evaluated, as climate risks like flooding may have implications across the value chain beyond owned operations and infrastructure. Kelly says that to avoid these blind spots, business leaders should consider the following:
- Map key physical infrastructure along your value chain, including owned operations such as offices, warehouses and factories, critical supplier infrastructure and key markets from a product and customer perspective.
- Overlay flood risks or other climate hazards to those locations using science-based climate scenarios.
- Identify locations at risk of material disruption, and plan to adapt or adjust operations accordingly. Decisions regarding investment, people, supply chain, acquisitions and product strategies should be informed by this risk analysis. Adaptive strategies to protect entire cities or regions will need to involve broad collaboration with governments and other businesses.
“You can make your particular facility flood-proof, but if your workforce can’t get there because the subway is flooded, then your business won’t thrive,” Cox says. “Businesses need to think holistically about their exposure to climate risk. There’s not one linear strategy.”
Takeaway
Climate risks like flooding are forcing business leaders to radically rethink their supply chains, their products and their markets. Cox recommends that businesses advocate for and support initiatives by governments and other organizations to ensure better operational planning that will make their own facilities as well as infrastructure, water supplies, power stations, housing and communities more resilient.
Thinking about climate risks can also reveal new opportunities. Case in point: One PwC client uncovered several hundred million dollars of financial risk embedded in its supply chain at supplier sites that faced a high risk of flooding. As the management team began building resilience to those risks, it also started to examine how they might be turned into long-term opportunities. The result was a new focus on R&D efforts to develop green products.
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