The weather affects consumers’ behavior in terms of what products they buy, where they buy them, and in what quantity. Even if a business knows how normal weather affects its earnings, unexpected abnormal weather events present their own risks. Research shows that abnormal weather disrupts the operating and financial performance of 70% of businesses worldwide. When weather conditions are on average adverse over days, weeks, or entire seasons, shortfalls in sales cause reduced cash flows and can lead to financial distress and business failure.
Severe Weather Threatens Businesses. It’s Time to Measure and Disclose the Risks
Managers and investors both need this information.
September 14, 2017
Photo by Annie Spratt
Summary.
The weather affects consumers’ behavior in terms of what products they buy, where they buy them, and in what quantity. Even if a business knows how normal weather affects its earnings, unexpected abnormal weather present their own risks. Today, weather risk management is still in its early days. The majority of businesses do not hedge against weather risks, nor do they have an accurate view on how much is at risk. Climate change is making severe weather more common, and reporting to investors about how climate affects the business will require companies to estimate and report on the risks they face from the weather.