Climate and environmental risks

BDO New Zealand Risk Landscape Report 2024

Businesses across the country will be holding out hope for more settled weather in 2024, as many continue to recover from the extreme events of 2023.

The 2023 BDO Global Risk Landscape Report shows that 44% of executives believe climate change poses an existential risk to their business, placing environmental risk as one of the main risks executives believe their businesses are least prepared for. In Aotearoa, we know all too well the impact of unforeseen and unprecedented weather events and the increasing threat posed to businesses by climate change. Cyclone Gabrielle and the Auckland floods created billions of dollars of losses across the country,  with scientific modelling showing extreme weather events will continue to become more frequent and severe into the future.

Climate change and the supply chain

We saw risk turn to reality in 2023 when supply chains were interrupted due to Cyclone Gabrielle and flooding across the North Island. Supermarkets warned of short supplies of certain foods, particularly fresh produce, highlighting the intersection between climate change and supply chain risks. 

New Zealand’s food system has become more centralised in recent years, with relatively few large-scale processing factories and a reliance on a small selection of specific regions to produce products – think of the density of horticultural products in the Bay of Plenty and Hawke’s Bay. This means that a major weather event in those regions can impact food supply across the country. Distribution centres are also scarce compared to the markets they serve; the Christchurch earthquake saw damage to centres supplying the entire South Island, forcing supermarkets to turn to their North Island hubs. And with most freight in New Zealand relying on road transport, damage to roads - like what we saw with Cyclone Gabrielle - can completely isolate communities and lead to enormous supply bottlenecks.

Local supply chain risks aside, New Zealand is heavily reliant on global supply chains for both importing and exporting products and services. Offshore climate-related disruptions can threaten the supply chains that New Zealand businesses are heavily reliant on, making this an essential area to focus on in resilience-planning for coming years. 

Environmental regulations create compliance concerns

Climate change is leading to more stringent environmental regulations. The cost of complying with these can be significant for businesses, who may be required to become more energy-efficient, reduce emissions, and invest in climate-resilient infrastructure.

Concern around environmental regulations is felt strongly within the agribusiness community and is reflected in the August 2023 report, “Cumulative Impact of Government Policy on New Zealand Sheep and Beef Farms”, which reports the New Zealand Government has introduced more than 20 new regulations in the past six years that directly affect agriculture. Farmers have faced increased costs for consent to undertake on-farm activities to comply with new regulations. Meanwhile, mandatory climate-related disclosures will impact some large businesses - and all eyes will be on the Government to see what the future holds for climate policies. 

Cascading risk from climate events

Climate change can lead to a wide range of further threats and risks for companies. These include the costs required to remedy damage from weather events, time and money to meet regulations and improve climate change resilience, disruption to supply chains, and reputational damage when risks aren’t taken seriously or companies are seen to not comply with regulations.  

We can see this cascade effect in action across industriesincluding tourism businesses impacted by the recent adverse weather events, agricultural businesses suffering through prolonged droughts and heavy rains, and insurance companies losing billions as more natural disaster claims are paid. This has a further knock-on effect for businesses when their insurance premiums rise. 

Tips for business leaders

  • Go beyond the immediate: Plan for ‘when,’ not ‘if’ weather events and climate change impact your business and consider the cascade of risks that could be triggered by this event. Look beyond your immediate recovery operations and think about what the impact of longer-term climate change might be for your business, and what steps you can take to address this.
  • Plan for specific situations: Scenario-build by identifying potential risks, assessing the likelihood and impact of those risks, and developing mitigation plans accordingly. 
  • Scan your supply chain: Look at your supply chain and consider how an adverse weather event in any location could impact your end-to-end operations. Consider whether diversifying your supply chain could help to mitigate this. 
  • Review the regulations: Stay on top of new regulations and legislation that could impact you. As always when it comes to tax and compliance, it’s better to be proactive than reactive. 
  • One step at a time: Understand what’s most important to your organisation and what levers you need to pull to achieve this. For example, you could start with a materiality assessment and then progress to an analysis of your supply chains.

For more assistance, reach out to your BDO adviser or learn about how BDO's Risk Advisory service can help you here.

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