Organizations need to recalibrate their strategies by recognizing climate change as a permanent factor affecting operations and costs.
When discussing climate disruptions, some executives still seem to regard them as fleeting issues. For instance, Jet2 CEO Stephen Heapy downplayed a recent heat wave on a July earnings call, claiming it was merely a minor concern. Similarly, Ryanair's Michael O'Leary echoed this sentiment, suggesting that one hot summer wouldn’t make much difference. This mindset reveals a fundamental management challenge: many leaders continue to treat climate disruption as an intermittently bothersome occurrence rather than a constant operational reality.
This misjudgment can have significant ramifications for sustainability professionals, sidelining their investment requests and limiting their influence in strategic discussions. Many sustainability experts report that their proposals are often perceived as inconsequential or overly optimistic. It's indicative of a larger issue—over half of the professionals I converse with feel their initiatives are dismissed as "fluffy" or "nice to have." Moreover, it's uncommon to find Chief Sustainability Officers (CSOs) occupying top executive positions, with less than ten having ever advanced to the CEO role at major corporations.
Ultimately, this is not just a problem for individuals in sustainability roles; it poses a strategic risk to businesses themselves. By relying on outdated climate assumptions, executives undermine their decision-making regarding capital investments, supply chains, labor forces, insurance, and consumer engagements. It’s crucial, now more than ever, to make a business case grounded in the realities that executives are familiar with—metrics such as baseline performance, cost projections, and competitive positioning.
Reassessing the Baseline: A New Normal
The perspective some executives hold is rooted in the past—a time when environmental factors seemed more predictable. For example, those who grew up in the 1970s experienced a significantly different world, free from personal computers, mobile technology, and the contentious political battles surrounding climate issues that now characterize today's landscape. The climate of the 70s was also notably cooler; average summer temperatures in the U.K. were approximately 1.5 degrees Celsius lower than what they've been over the past decade.
A closer examination of summer temperature trends from 1970 to today illustrates that what was once "normal" has significantly shifted. Instead of spotting erratic annual variations around a steady average, we see a consistent rise in temperatures. Therefore, the established baseline is increasingly irrelevant.
Highlighting Costs: What’s Already at Stake
Identifying the visible and hidden costs linked to climate effects is essential for making a compelling case to top executives. For example, during one particularly sweltering weekend in July, airlines experienced considerable disruptions in Las Vegas, with around 580 flights delayed due to soaring temperatures. Hotter air results in thinner atmospheres, forcing planes to need longer runways, which, at times, requires passengers to be deplaned to safely manage weight restrictions. In one instance, American Airlines offered a $1,500 voucher to passengers for their seats due to these challenges.
But it’s not just these tangible costs that need attention; there are also extensive hidden costs that organizations are already bearing without linking them to sustainability goals. For airlines, clear-air turbulence, linked to climate change, has increased significantly—up by approximately 55 percent over the North Atlantic since 1979. This has led to financial implications estimated between $150 million and $500 million annually for U.S. carriers due to injuries, inspections, and delays.
No sector is immune. Utilities encounter rising wholesale electricity costs during heatwaves, which can lead to increased bills for customers. Manufacturers grapple with worker safety and productivity losses during extreme temperatures, while retailers deal with challenges in demand forecasting as seasonal patterns shift unpredictably. The nature of these challenges may vary by industry, but the fundamental management dilemma remains: costs that were once sporadic have transitioned into regular occurrences, which means relying on historical averages is no longer a safe strategy for decision-making.
Executives should be counseled to seek out these concealed costs within their operations and calculate their financial impact. It's important to tie these findings into key metrics leadership already monitors—such as on-time delivery rates or customer retention—to enhance relevance and urgency.
Examining Competitor Responses
While a singular cost may be dismissed, when paired with competitor actions, it becomes much harder for executives to ignore. Each industry's stakeholders face similar climate realities, yet responses often differ widely. In the insurance sector, for example, the same climate-induced challenges—ranging from droughts to wildfires—also affect the financial stability of insurers. A recent MSCI Institute survey indicated that 88 percent of over 50 global insurance companies recognize physical climate risks as a potential threat to financial stability.
Forward-thinking insurers are re-evaluating their approaches. For instance, Mercury has committed to entering the market with new policies for homeowners in high-risk areas, while CSAA implemented guarantees for policy renewals in line with rigorous safety standards. Chubb is also reshaping its risk assessment methodologies to align more closely with evolving data rather than strictly historical trends.
In the airline industry, Emirates has adopted a proactive approach to managing turbulence, collaborating with around 30 other carriers to share real-time data about turbulent areas to mitigate flight disruption risks.
Aligning Strategy with Present-Day Realities
The current warming trend reflects a significant shift, one that's expected to solidify in the coming years. According to climatologist Zeke Hausfather, there's a 95 percent likelihood that 2027 will set new heat record, surpassing whatever milestones are established this year. Many organizations remain optimistic that climate patterns will revert to earlier norms—a hope that has not been borne out by the evidence.
Companies like CSAA, Chubb, and Emirates have recalibrated their operational expectations to reflect the new baseline. It's imperative for businesses to do the same: adjust their strategic outlook to account for today's climatic realities—ensuring that their actions, responses, and operational planning reflect the undeniable changes in their environment.
The potential for growth lies in those who adapt to these changes promptly and effectively. It's high time businesses recognize climate change as a constant factor that influences every aspect of strategic planning, from forecasting to risk management.
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