Allianz Risk Barometer 2025 -
Global risk #5: Climate change (19%)

The challenges are many for businesses. As climate- and nature-related risks continue to rise, and awareness of them among companies grow, the financial implications are also becoming increasingly pronounced, whether it concerns managing transition risk, mounting costs from regulatory compliance on disclosing physical climate risks or dealing with operational disruptions caused by more extreme weather events or ecosystem degradation.

Physical damage and business interruption are the two major impacts of climate change that companies fear most, according to Allianz Risk Barometer respondents given their potential effect on profitability, downtime, production or service delivery.

The environmental impact (e.g., extreme temperatures, resource scarcity, biodiversity loss) ranks third. Extreme temperatures can drive up energy demand, which is especially critical for industries reliant on cooling systems, potentially leading to operational cost increases. Water scarcity can threaten businesses reliant on water for operations, while biodiversity loss undermines ecosystem services which many industries depend on, for example, agriculture or maintaining crop yields, Fuldauer explains.

Managing climate change transition risk (e.g., decarbonization and net zero strategies) ranks as the environmental, social, governance (ESG) and sustainability risk trend of most concern to companies for the first time, the Allianz Risk Barometer results also show. The sheer volume of regulations, increasing reporting requirements, policy uncertainty and data transparency are cited as the most significant challenges.
 

There has been a renewed focus on climate change risk management post-Covid-19 after this peril dropped down the ranking during the pandemic years as companies dealt with more immediate challenges.

The top three actions companies are taking to mitigate the direct impact of climate change according to respondents are: Adapting or increasing insurance protection (incl. alternative risk transfer); Adopting carbon-reducing business models (e.g., recycling and reducing waste, encouraging sustainable travel, developing more sustainable supply chains); and Creating contingency plans for climate-related eventualities (e.g., response and recovery, assessing critical systems and resources). More companies also say they are investing in clean technologies to reduce emissions.

Awareness among businesses of the need to deploy climate resilience measures, which can help to safeguard business operations and contribute to a more sustainable future is growing, the Allianz Risk Barometer results also show. The impact of chronic perils on operations, such as drought, can often be underestimated because their impact is more gradual, as can the impact of climate change on aging and interdependent infrastructure, and on the workforce, for example, extreme heat disrupting labor.

Building resilience goes beyond regulatory compliance and risk reporting to taking proactive measures to protect business assets, employees, and operations, explains Fuldauer, who outlines three main categories of resilience strategies which businesses can adopt.

Physical measures are direct actions to protect infrastructure and assets from climate risks. Examples include flood barriers, sea walls, and flood-proof building materials. Nature-based solutions involve restoring or protecting natural ecosystems to reduce climate risks. For example, green open spaces can help to cool air while unpaved areas can reduce the velocity of storm water. Behavioral changes are vital for driving effective resilience strategies. These include developing and practicing emergency plans, training employees on what to do during extreme weather, and educating communities on best practices.