In early October, while the United States was still reeling from the impact of Hurricane Helene, Abrahm Lustgarten wrote that people fleeing climate disasters will change the American south (Propublica and NYTimes). This isn’t new news. NGOs have been forecasting massive population displacement due to climate change for some time now. For example, in 2021 the World Bank forecast over 200M persons could be displaced, most within their own countries, by 2050. In the United States, estimates are that as many as 13M people will be displaced by the end of the century, primarily from the south.
Lustgarten’s article focused on the social costs of this migration. He made it personal by talking about the follow-on impacts that the hollowing out of the south would set in motion. But what about the risks to business? After all, the southern United States is home to key players in Energy and Oil (45% of US refining capacity is on the Gulf Coast), Retail and Consumer Goods (Walmart, Home Depot, Lowes), Technology and Communications (AT&T, Dell), and Logistics and Transportation (UPS and Fedex). Some estimates are that 30 to 40% of the Fortune 100 will be impacted by changing weather patterns in the South.
Many boards and management teams are already considering the physical risks extreme climate brings. Depending on the business, any or all of these risks must also be considered:
1. Labor Market Disruption: Businesses in coastal areas like Florida and Texas will face labor shortages as younger, skilled workers relocate inland. The remaining population will primarily consist of older individuals with limited capacity for employment, exacerbating productivity issues.
2. Supply Chain Disruptions: Frequent extreme weather events, such as hurricanes, may disrupt supply chains by damaging infrastructure, reducing access to essential goods and inputs. This will increase operational complexity and costs, especially in regions prone to storms and flooding.
3. Market Demand Shifts: As populations move inland, consumer demand will decline in vulnerable coastal areas. Businesses dependent on local markets will experience a reduction in revenue, necessitating adaptation to shifting demographic patterns and potentially moving operations to inland, safer regions.
4. Regulatory and Legal Risks: Businesses in affected regions may face new government regulations regarding disaster preparedness, land use, and environmental protection. The financial burden of complying with these regulations could increase as local governments seek to address the effects of climate migration.
5. Property and Asset Risks: Coastal properties and physical assets in regions identified as “abandonment zones” will likely decrease in value as residents leave. Businesses may find it increasingly difficult to sell or maintain properties in high-risk areas, leading to potential losses and higher insurance costs.
6. Social and Political Instability: As communities age and face greater economic decline, social services will become strained, and political instability may arise. Businesses may encounter a more challenging operational environment with reduced government support and rising tensions in affected communities.
7. Brand and Reputation Risks: Businesses that fail to act on climate risks or support local adaptation efforts may face reputational damage, especially in regions where migration pressures are mounting. Proactive strategies to assist displaced populations or support sustainability could enhance brand image.
8. Financial Risks: Investors may reassess the viability of businesses operating in vulnerable coastal areas. Access to credit may tighten for firms seen as overexposed to climate-related risks, particularly if asset values decline and revenue forecasts are uncertain.
9. Operational Adaptation: Businesses will need to adapt operational models to serve a changing demographic, including older, less mobile populations. This may involve investing in new products, services, or technologies that cater to an aging customer base or relocating operations to safer areas.
Which of these enterprise risks are material to your business? How does your company assess these risks? How frequently? What is your near-term extreme weather mitigation strategy, and your long-term sustainable business strategy?