Global advisory firm WTW has outlined strategies to help businesses manage escalating climate risks, urging a shift beyond traditional approaches.
The recommendations focus on addressing the increased frequency and intensity of natural catastrophes and their impacts on organisations.
WTW highlighted its framework, which emphasises that businesses must extend beyond historical models to better navigate both acute and chronic climate risks.
Traditional natural catastrophe (nat-cat) modelling, which often relies on historical data, may not fully account for the complexity of today’s climate risks.
WTW highlighted the need to consider secondary and cascading events, such as landslides following heavy rains, which can amplify damage and disrupt business operations.
To address these challenges, WTW suggests using scenario stress testing alongside modelling to anticipate how interconnected risks might evolve. For example, the impact of prolonged droughts followed by intense rainfall – already observed in some regions – requires a more nuanced assessment of soil conditions, infrastructure vulnerabilities, and potential business interruptions.
WTW recommends that businesses move away from managing climate risks within isolated departments, such as treasury, risk, and sustainability, and adopt a more integrated approach. Collaboration across these functions enables a comprehensive understanding of risks and supports long-term planning.
An example cited involves decisions about flood mitigation. While a sustainability team might propose nature-based solutions, such as wetlands restoration, treasury teams may focus on immediate cost implications. By working together, organisations can balance short-term costs with long-term benefits, ensuring resilience while meeting sustainability goals.
This integrated approach also prepares businesses for evolving regulations like the European Union’s Corporate Sustainability Reporting Directive (CSRD), which mandates more detailed disclosures on climate risks and environmental impacts. Similar trends are emerging globally, including in New Zealand.
As climate risks grow, traditional insurance markets may not always provide adequate or affordable coverage. WTW encourages organisations to explore alternative risk transfer (ART) mechanisms, such as captives or parametric insurance.
The company noted that combining ART with detailed risk modelling can make organisations more attractive to traditional insurers by demonstrating proactive risk management.
To enhance their climate risk strategies, businesses should engage with external stakeholders, such as local governments and supply chain partners. Understanding public infrastructure plans and community emergency responses can provide valuable insights for continuity planning.
For instance, utilities and councils often publish strategies for managing droughts or floods. Incorporating this information into business planning can strengthen recovery efforts, minimise disruptions, and optimise spending on risk mitigation.
Many climate disclosures fail to provide actionable insights, WTW observes. A more comprehensive approach – one that connects physical risks with economic and operational considerations – can help businesses develop resilient strategies and identify new opportunities.
Going beyond greenhouse gas metrics, companies should assess how climate risks might affect future profits and operations. Detailed scenario analyses enable businesses to align with long-term sustainability while positioning for a low-carbon economy. This approach supports not only regulatory compliance but also stakeholder confidence.
As New Zealand faces its own climate challenges, including floods, droughts, and rising sea levels, WTW’s recommendations offer a framework for businesses to strengthen resilience.
Integrating alternative risk transfer options, fostering internal collaboration, and broadening climate risk perspectives could enable organisations to navigate emerging risks while maintaining operational stability.
