Climate Risks and Commodity Markets: Strategies for Resilience and ESG Integration

Climate risks and commodity markets are closely linked—and their influence is growing. Droughts, heatwaves, and other extreme weather events not only cause crop failures but also intensify price volatility through market speculation. According to the IPCC’s Sixth Assessment Report, climate-driven disruptions are projected to become more frequent and severe, with cascading impacts on global food security and commodity prices (source). Between 1980 and 2023, climate-related economic losses in the EU rose from €8.5 billion annually to €44.5 billion (2020–2023). At the same time, 80% of damages remain uninsured, underscoring the urgent need for risk management and adaptation strategies (EEA).

Sustainability managers face the challenge of analyzing these risks and integrating them into ESG strategies. Physical damages, transition risks, and new regulations such as the EU Taxonomy or the German Supply Chain Due Diligence Act require proactive measures. Examples like the drought-induced reduction in olive oil production in the EU—where output fell by over 50% in Spain in 2023 due to severe drought (Reuters)—or low water levels on the Rhine, which disrupted logistics and led to significant economic losses, demonstrate the importance of climate-resilient planning.

What you should know:

• Physical risks: Droughts, heatwaves, and extreme weather lead to production losses. The UNEP FI highlights that physical climate risks are already impacting agricultural yields, water availability, and infrastructure.
• Market volatility: Speculation amplifies price fluctuations. For instance, the World Bank notes that climate shocks can trigger sharp commodity price spikes, affecting both producers and consumers (World Bank).
• Regulations: New EU requirements make climate risk assessments mandatory. The EU Taxonomy and CSRD are setting new standards for disclosure and due diligence.
• Solutions: Tools like impact chains, scenario analyses, and value chain assessments help identify and manage risks. Leading organizations are adopting advanced analytics and climate risk modeling to inform decisions (McKinsey).

Integrating climate risks into your strategies is not only a legal necessity but also protects against long-term economic damage. Now is the time to take action and make your supply chains more resilient.

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Climate Risks for Commodities Explained

The impacts of climate change on commodity markets can be divided into three main categories. Each of these brings specific challenges that sustainability managers must address. German companies face the task of complying with both national and European regulations as part of the EU’s ESG regulatory agenda. Below, we take a closer look at these risks and their effects.

3 Types of Climate Risks: Physical, Transition, and Regulatory Risks

Physical climate risks refer to direct consequences of climate events such as heatwaves, droughts, heavy rainfall, or water scarcity that can disrupt commodity production. These risks often lead to production outages and interrupted supply chains. Since 2000, Germany has lost 2.5 cubic kilometers of water annually, making it one of the regions with the highest water loss worldwide (DW).

Transition risks arise from the shift to a low-carbon economy. Companies must adapt their business models, implement new technologies, and respond to changing consumer demands as well as stricter environmental standards. Resource-intensive industries are under particular pressure here, as highlighted by the Task Force on Climate-related Financial Disclosures (TCFD) (TCFD).

Regulatory risks result from the requirements of new laws and regulations. In Germany, the Corporate Sustainability Reporting Directive (CSRD), the EU Taxonomy Regulation, and the Supply Chain Due Diligence Act are especially relevant. Stakeholder expectations for ESG performance are also rising, leading to a stronger focus on binding regulations.

How Climate Events Affect Commodities

The physical threat from climate events is already impacting the dynamics of commodity markets. Between 2000 and 2021, climate-related damages in Germany cost at least €145 billion. Forecasts predict these could rise to €900 billion by 2050 (BMUV).

The dramatic nature of this trend is particularly evident in agriculture. In 2020, 20 times more spruce trees died than the average from 2010 to 2019, due to drought stress and pest infestation. Wine production is also affected: In southwestern German wine regions, ice wine production in 2019 fell almost to zero, as there were not enough cold days (DW).

“The consequences of the climate crisis are increasing rapidly. The current monitoring report makes this abundantly clear. More and more storms, heavy rainfall, droughts, and heatwaves are impacting people’s health, ecosystems, and the economy.” – Steffi Lemke, German Federal Environment Minister

Without countermeasures, it is expected that by 2050 the population at risk of flooding will increase by 466%. At the same time, heatwaves could occur 80% more frequently. The importance of irrigation systems is growing: In 2022, 6.8% of agricultural businesses had irrigation systems, and the irrigated area increased by 24% between 2009 and 2020 (Destatis).

German and EU Regulatory Requirements

Sustainability managers in Germany must navigate a complex framework of national and European requirements. The EU Deforestation Regulation (EUDR), for example, prohibits the sale of products linked to deforestation. Companies are required to exercise special due diligence for commodities such as palm oil, beef, soy, coffee, cocoa, timber, and rubber. The German Supply Chain Due Diligence Act is expected to be aligned with the EU Corporate Sustainability Due Diligence Directive (CSDDD).

The BaFin, Germany’s Federal Financial Supervisory Authority, also warns of risks from climate change, geopolitical uncertainties, and economic weaknesses. Transition risks, such as unpredictable costs during the shift to a low-carbon economy, are a particular focus (BaFin).

Siemens Healthineers provides an example of implementing such requirements. The company has committed under the Science Based Targets Initiative (SBTi) to become climate-neutral by 2030 and uses these goals to develop long-term strategies.

“As European citizens increasingly feel the effects of climate change, they expect Europe to act. Industry and investors expect us to provide a predictable direction. Today, we show that we are firmly committed to decarbonizing the European economy by 2050. The goal is clear, the path is pragmatic and realistic.” – Ursula von der Leyen, President of the European Commission

The EU aims to reduce net greenhouse gas emissions by 90% by 2040 compared to 1990. These ambitious targets require companies in the commodity sector to fundamentally realign their strategies (EU Climate Action).

Methods and Tools for Climate Risk Assessment

Accurate analysis and targeted methodology are crucial for assessing climate-related risks in commodities. The global market for climate risk management is forecast to grow from USD 8.72 billion in 2025 to an impressive USD 104.8 billion by 2035—a CAGR of 28.23% (MarketsandMarkets). Below, we look at key frameworks and tools that support this process.

Frameworks and Tools for Risk Assessment

A central tool in climate risk assessment is the Impact Chain (IC). Impact Chains illustrate the links between climate hazards, affected elements, their vulnerability, and the resulting impacts. By combining participatory approaches with semi-quantitative risk matrix methods, analyses at various levels—from national to local—can be linked with economic assessments (AdaptationCommunity.net).

Value chain analysis helps identify which areas of a company contribute most to profit margins. It also highlights where climate risks could have the greatest financial impact. While quantitative methods provide detailed, data-driven insights, qualitative approaches complement them with expert assessments.

These methods are especially important for evaluating supply chain disruptions caused by droughts or extreme heat periods. For example, in 2018, low water levels on the Rhine led to a 0.2% drop in German GDP. Economic damages amounted to €2.4 billion in Germany and €295 million in the Netherlands. These events prompted the BMVI to develop an eight-point action plan to secure freight transport on the Rhine (BMVI).

Integrating Risk Assessment into ESG Strategies

The methods mentioned can be seamlessly integrated into existing ESG and risk management systems. Mark Branson, President of BaFin, emphasizes:

“The environment in which financial sector companies must operate is highly challenging, as we lack relevant historical experience for many risk drivers—such as climate change, geopolitical upheavals, and technological leaps. This makes it all the more important for financial sector companies to think in scenarios, manage risks wisely, and prepare for potential shocks with well-stocked capital and liquidity buffers.”

The EU’s Corporate Sustainability Reporting Directive (CSRD), effective from 2025, requires companies to provide detailed climate-related disclosures, affecting around 40% of the global economy. Companies must integrate their net-zero targets into operations to minimize transition risks (CDSB).

Some practical examples show how companies are tackling these challenges: Zurich Insurance used Microsoft Azure-based platforms in 2024 for real-time data analysis and precise risk modeling. Shell is focusing its 2025 energy transition strategy on carbon market exposure, while BP is using advanced scenario analysis tools in its climate resilience roadmap (BP).

Fiegenbaum Solutions Climate Risk Services

Fiegenbaum Solutions supports companies in systematically assessing and managing climate risks. Johannes Fiegenbaum’s consulting services are tailored specifically to the needs of commodity companies and offer customized solutions for climate risk assessments and resilience planning.

The offering includes Life Cycle Assessments (LCA) that identify climate-related risks along the entire value chain. With impact modeling and scenario analyses, companies gain in-depth insights into various climate scenarios and their potential effects on commodity prices and supply chains.

Fiegenbaum Solutions offers flexible models—from project-based approaches to ongoing strategic consulting. Start-ups in the commodity sector especially benefit from attractive terms to develop climate-resilient business models.

A key component of the approach is data-driven decision-making. AI-powered solutions make it possible to analyze, visualize, and respond to climate-related threats in a targeted way. Software solutions dominate the market with a share of 60.17%, closely followed by cloud-based systems at 49.79% (MarketsandMarkets).

Collaboration starts with a free consultation. This is followed by a detailed proposal with a clearly defined scope of work, timeline, and transparent fee structure. This enables sustainability managers to make informed decisions and successfully implement regulatory requirements such as the CSRD or the EU Taxonomy.

Strategies for Climate Risk Management

Rising climate risks make it clear that companies need proactive strategies to secure their commodity supply and remain economically viable in the long term. Extreme weather events are among the greatest threats, capable of triggering global crises. Building on the assessment approaches described above, here are measures to help companies manage climate-related risks effectively.

Building Climate-Resilient Supply Chains

A resilient supply chain starts with diversifying sourcing and transportation routes. However, 82% of companies currently lack full transparency over their supply chains and logistics processes (Gartner). This deficit makes them particularly vulnerable to climate-related disruptions.

Supply chain mapping enables companies to identify critical vulnerabilities that could threaten production. With a global increase in flood disasters of 181% since the 1980s (WMO), it is increasingly important to identify suppliers in at-risk regions and establish alternative sources.

Local sourcing offers an additional solution: It increases flexibility, improves quality control, and reduces dependence on long transport routes that could be affected by extreme weather events. At the same time, companies can involve their suppliers in decarbonization strategies. For example, Schneider Electric had already integrated 1,015 suppliers into its Zero Carbon Project by Q3 2023. These suppliers have reduced their CO₂ emissions by an average of 24% since the program’s launch in 2021 (Schneider Electric).

Successful partnerships demonstrate how effective such approaches can be. ZF has signed a 7-year contract with H2 Green Steel to supply 250,000 tons of green steel annually from 2026—about 10% of ZF’s annual steel needs. This is expected to reduce CO₂ emissions by 2.3 million tons compared to conventional methods (H2 Green Steel).

Leveraging Circular Economy Principles

The circular economy offers a systematic approach to mitigating risks and reducing dependence on volatile commodity markets. Without new measures, global material consumption is set to more than double from 79 gigatons in 2011 to 167 gigatons by 2060 (OECD). However, a circular approach could cut Europe’s CO₂ emissions by up to 50% by 2030 (Ellen MacArthur Foundation).

Recycled materials can significantly reduce dependence on volatile commodity prices. Estimates suggest the circular economy could reduce primary material consumption by 32% by 2030 (Circularity Gap Report).

Practical examples highlight the benefits: Apple uses its recycling robot Daisy to recover materials from old iPhones (Apple). Dell has developed a closed-loop recycling system for plastics from old computers (Dell). Inditex plans to source 30% of its production volume from Infinited Fiber—textile fibers made entirely from textile waste—starting in 2024. The contract is worth over €100 million (Inditex).

Technology and Data Solutions

Digital technologies open up new possibilities for managing climate risks in supply chains. AI-powered analytics help companies detect risks early and strengthen supply chain resilience. The combination of artificial intelligence and blockchain also increases transparency and enables reliable record-keeping (World Economic Forum).

Satellite monitoring combined with AI analysis provides additional insights into the first links of the supply chain. These technologies are becoming increasingly important in light of record temperatures and the escalating climate crisis (NASA).

A concrete example is Royal Family Farming in Washington State. By using blockchain and AI, the verification process for methane reduction projects was shortened from over two years to just a few weeks (IBM).

The collaboration between Xpansiv and Vyzrd also shows how data integration can strengthen climate risk management. Xpansiv supports more than 80% of the world’s issued carbon credits. Sunil Rana, CEO of Vyzrd, explains:

“Vyzrd’s Gen-AI-enabled platform empowers companies to act on actionable insights that combine climate, industry, corporate sustainability, and fundamental data.”

Real-time monitoring and early warning systems give companies the ability to respond quickly to climate-related risks. Studies show that companies that proactively manage their supply chain risks can gain a significant competitive advantage (McKinsey).

Additionally, regulatory requirements are driving the need for robust data platforms. More than 30 countries, accounting for over 60% of global GDP, have already introduced mandatory climate-related financial reporting for companies and financial institutions (IFRS).