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Could climate change lead to a wave of company insolvency?

Could climate change lead to a wave of company insolvency

Could climate change lead to a wave of company insolvency

Recent events both at home and abroad highlight the growing risk that climate change poses for businesses in the UK.

Flooding, wildfires and extreme weather events have the potential to damage company assets and disrupt operations. And almost every forecast suggests that these events are likely to get worse before they get better.

Climate change can also affect businesses in a number of other ways. Changing weather conditions may lead to resource scarcity and cause dramatic price increases for essentials like water, food and energy.

Efforts to avert climate change could also have a damaging effect on companies. More stringent environmental levies like a carbon tax would make it very difficult for some of the most polluting businesses to operate profitably.

Other policies, meanwhile, could wreak havoc on certain industries. The government’s decision to ban the sale of new petrol and diesel cars from 2030 could have disastrous consequences for petrol stations and other companies in the fuel supply chain.

Climate change is likely to affect every company in one way or another. How much disruption your company faces will depend on a number of factors, including:

  • Local infrastructure

How much your company will be impacted by climate change will depend to a large extent on the quality and resilience of local infrastructure, including energy, transportation and telecoms systems.

If this infrastructure is poor, then severe weather could disrupt supply chains and affect staff, leading to lost business and reputational damage. This is a particular concern for small businesses that have less capacity to mitigate against poor local infrastructure

  • Geographic location

Some parts of the UK will feel the effects of climate change more sharply than others. The risk of flooding and coastal erosion is clearly higher in certain areas than in others. There may also be important differences in flood or coastal defences which could hurt businesses in some areas.

Certain geographies are also likely to be more affected by shortages of water, which could lead to difficulties in supply and rising prices in some places.

  • Sector and supply chain

Some businesses will be more affected by others because of their sector and the nature of their supply chain. Businesses in sectors with a high energy demand will face much higher costs in the future.

Businesses with weak or global supply chains could also see their operations affected more by climate change than others. Companies with supply chains extending to some of the most vulnerable countries like parts of Asia and sub-Saharan Africa could be most affected.

Protecting your company against climate risks

Climate risks can be complicated and difficult to predict. But it can help to plan for them well in advance. You should identify all the potential problems and try to work on and invest in trying to solve them early.

Remember, as well as a threat, climate change can provide opportunities for the businesses that are best prepared to adapt to changes.

If your company is struggling with debt and needs to restructure for the next generation, speak to a member of our team today. Call: 0800 611 8888.