Extreme weather events and climate risks cause billions in damages every year. Companies in the EU must act now to protect themselves from economic and regulatory consequences. The urgency of this challenge is underscored by global scientific consensus, as detailed in reports from the Intergovernmental Panel on Climate Change (IPCC), which highlight the accelerating pace and severity of climate impacts worldwide.
Conclusion: Companies that integrate climate risks into their strategies early on secure their long-term existence and competitiveness. Now is the right time to take action.
Climate risks can be divided into two main categories: physical risks, which arise from direct climate impacts, and transition risks, which result from the shift to a climate-neutral economy. These challenges force companies to fundamentally rethink their strategies and structures—from operational infrastructure to regulatory requirements.
Physical risks refer to the direct impacts of climate change. These include acute events such as floods or storms that can cause immediate damage. On the other hand, there are chronic risks, such as rising temperatures or changing precipitation patterns, which have long-term effects. For example, in the wine industry, a lack of cold periods leads to significant production losses. According to the European Environment Agency, sectors like agriculture, forestry, and transport are particularly vulnerable to these changes.
Transition risks, by contrast, arise from the move toward a climate-neutral economy. These can manifest in various areas:
The BaFin plans to pay special attention to climate change risks starting in 2025. Nevertheless, it is clear that many companies still have catching up to do when it comes to managing sustainability risks.
The consequences of climate change are already clearly noticeable. A survey of German transport and logistics companies found that 67% struggled with resource shortages, 51% reported infrastructure damage, and 46% experienced supply bottlenecks. An example from 2023 illustrates this: low water levels in the Rhine due to drought severely impacted freight transport. This mirrors findings from the OECD, which reports that climate-related disruptions to infrastructure and supply chains are increasing globally, affecting both costs and reliability.
"Climate change affects us all—and that includes all companies. Awareness of the realistic impacts that companies have on our environment, and the associated consequences, should be part of every strategic business decision today. This enables opportunities and risks to be assessed and appropriate measures to be implemented."
– Dr. Steffen Wagner, Partner Deal Advisory, Head of Corporate Finance and Transport & Infrastructure, KPMG AG Wirtschaftsprüfungsgesellschaft
The economic costs are enormous: Between 2000 and 2021, damages in Germany amounted to at least 145 billion euros. By 2050, these costs could rise to as much as 900 billion euros. At the same time, many companies lack crucial information, such as flood protection measures or climate risks at customer locations. In addition to direct damage to infrastructure and supply chains, regulatory requirements are also forcing companies to act.
EU regulations are shaping the regulatory landscape. 75% of companies expect stricter climate laws. Yet only 37% of companies fully integrate these requirements into their risk management.
Key regulations include:
"Many affected SMEs have prepared as best they can. Easing the rules at the EU level would certainly relieve SMEs that are already struggling with bureaucracy and other hurdles. But it would also mean that companies that have already prepared and explored the issue would have done all that for nothing."
– Marie-Theres Husken, BVMW sustainability expert
Adapting to these requirements requires significant investment. More than half of companies (52%) are increasing their staff to implement regulatory requirements and decarbonization measures.
To effectively integrate climate risks into corporate strategy, structured approaches and targeted emergency plans are essential. While many companies already monitor traditional risks, dealing with climate risks requires new tools and approaches. Climate scenario analyses and stress tests, as recommended by the European Banking Authority (EBA), play a crucial role in methodically assessing these risks and ensuring financial resilience.
The first step in integrating climate risks is a systematic analysis of physical and transition risks. Scenario analyses and climate stress tests play a crucial role in methodically assessing these risks.
The Climate Scenario Analysis (CSA) is a modern approach that examines the financial significance of climate risks within ESG risk management. According to the European Banking Authority (EBA), there are two main approaches: Climate Stress Tests (CST), which assess financial resilience, and Climate Resilience Analyses (CRA), which evaluate the business model. These methods highlight that climate change poses systemic risks, especially for financial institutions with specific regional or industry dependencies.
For small and medium-sized enterprises (SMEs), there are practical tools tailored to their needs. The DERRIS Tool helps SMEs identify their vulnerability to climate hazards and develop cost-effective risk mitigation measures. The Climate Expert Tool (CET) offers an Excel-based five-step tool with an action catalog and practical case studies.
Key factors for successful integration of climate risks include:
Based on this, emergency and continuity plans become a central element in preparing for extreme weather events.
Given physical and regulatory risks, emergency plans should include targeted measures for damage assessment, resource deployment, and restoration of critical functions. These plans must be tailored to the risks, locations, and operational requirements of each company. Comprehensive emergency management includes ongoing processes such as hazard identification, risk assessment, planning, response coordination, and recovery.
Essential components of an emergency plan:
A defined chain of command ensures that everyone knows their roles and responsibilities.
Practical steps to prepare for extreme weather:
Operational measures for crisis management:
Regular maintenance and inspection of buildings and equipment are crucial to minimize weather-related damage.
In the long term, companies should include climate resilience analyses up to 2050 and risk mitigation measures in their planning, as required by the EU Climate Law. These measures should be linked to companies’ transition plans to promote a proactive approach to decarbonization.
Once climate risks have been strategically integrated into risk management, the next step is to put this strategy into practice. Companies now face the task of developing measures to strengthen their resilience—as efficiently and feasibly as possible, even for smaller businesses and startups.
Modernized infrastructure is key to better adapting to climate challenges. Energy efficiency plays a central role: energy-efficient technologies can not only reduce operating costs but also minimize dependence on volatile energy prices. The International Energy Agency (IEA) notes that global investments in energy efficiency reached record highs in recent years, reflecting its growing importance for business resilience.
Another important aspect: Renewable energy. Solar panels on company roofs are not only a way to reduce energy costs in the long term but also make companies less dependent on the power grid. Especially for smaller businesses, modern solar technologies and integrated energy management systems can be a worthwhile investment.
Water management is also becoming increasingly important. Water-saving technologies and rainwater harvesting systems help reduce costs and ensure water supply—a crucial factor in times of drought and flooding.
AI-powered climate monitoring gives companies the ability to better assess climate risks, detect environmental changes early, and use resources more efficiently. These technologies are becoming increasingly affordable and are now accessible even to smaller companies that want to benefit from precise risk analyses.
The numbers show how urgent these measures are: While weather-related damages in Germany have increased by 48%, the greentech sector is growing by 65%—a clear signal that investments in climate-resilient solutions are no longer optional.
A stable supply chain is essential to avoid climate-related disruptions. Three-quarters of German companies have made their supply chains more resilient in recent years, which is understandable given a 183% increase in supply chain disruptions since 2019.
Diversifying suppliers is one of the most effective strategies. As Katja Busch, Chief Commercial Officer at DHL, emphasizes:
"Current global events and dynamics show how important robust supply chains are and that companies must adapt their international supply networks."
Practical steps include seeking alternative suppliers, assessing resilience and costs within the network, and improving transparency for better real-time collaboration.
Life Cycle Analyses (LCA) go a step further: they reveal weaknesses throughout the value chain, from delays and cost overruns to quality issues. Regular compliance assessments are also important to minimize risks such as human rights violations or environmental damage.
The Supply Chain Due Diligence Act (LkSG) in Germany requires companies to assess risks in their supply chains and take appropriate measures. This includes effective risk management systems and annual reports on compliance with due diligence obligations.
However, Dr. Klaus Dohrmann of DHL points out:
"Diversifying the supply chain is neither a universal solution nor a strategic necessity for every company. However, every company that relies on logistics should regularly conduct a strategic review of its current supply chain to evaluate options and decide whether changes are necessary or desirable."
Fiegenbaum Solutions offers specially developed consulting approaches to seamlessly integrate the measures mentioned into existing business models. Startups and SMEs in particular benefit from practical ESG strategies designed for scalability and efficiency from the outset.
| Area | Focus | Benefit |
|---|---|---|
| ESG Strategy Development | Life cycle analyses, net zero approaches | Holistic concepts for sustainability |
| Compliance Management | CSRD, CBAM, GDPR | Ensuring legal requirements |
| Data-Driven Optimization | Impact modeling, climate risk assessment | Better decision-making basis |
Consulting services include calculating the carbon footprint and developing reduction measures. Digital tools enable companies to conduct life cycle analyses and focus on key environmental impacts such as energy consumption and emissions.
Another focus is adapting to regulatory changes. With 77% of companies soon required to disclose climate risks, it is crucial to prepare early for new reporting obligations. Fiegenbaum Solutions supports companies in making processes and supply chains more sustainable while meeting compliance requirements.
Impact modeling offers startups a way to make the effects of their business activities measurable and to make data-driven decisions.
Companies must carefully align their resilience strategies with their resources. While large corporations can often pursue multiple approaches simultaneously, startups and SMEs face the challenge of setting targeted priorities. These considerations complement risk management by focusing on both short-term and long-term measures. Below, the main strategies are examined with their strengths and weaknesses.
A key decision is the choice between proactive and reactive approaches. Proactive measures aim to minimize risks in advance, while reactive strategies only come into play after climate impacts have occurred. As the Sustainability Directory explains:
"Reactive adaptation responds to events after they occur, while proactive adaptation prepares for anticipated future events."
This distinction is crucial, as studies show that over 200 of the world’s largest companies estimate that inaction on climate change could cost them nearly $1 trillion combined (CDP Global Climate Change Analysis).
Proactive strategies often require higher initial investments but offer clear long-term benefits. For example: while reactive measures such as opening cooling centers during heatwaves are short-term solutions, proactive approaches focus on sustainable solutions like planting trees in cities for cooling or constructing better-insulated buildings.
For SMEs, hybrid approaches are particularly promising. These combine cost-effective immediate measures with long-term investments. A survey of 1,360 SMEs in Sub-Saharan Africa shows that 68% consider environmental risks significant for their business. In addition, 48% of exporters invest in flood protection systems, compared to only 39% of non-exporters.
However, the Sustainability Directory cautions:
"Sole reliance on reactive strategies risks higher costs and fails to address root vulnerabilities in changing conditions."
Financial resilience plays a decisive role in choosing a strategy. During the pandemic, only 16% of resilient companies reported layoffs, compared to 76% of less resilient companies. This underscores the importance of measures such as cash flow management, working capital optimization, and revenue diversification.
Andreas Brieger, Director for Climate, Energy and Environment at SMEunited, calls for concrete action:
"The recently announced European Commission Adaptation plan must be more than another strategy. It must deliver concrete actions that accelerate efforts on all levels to close the climate protection gap."
SMEs have some advantages over large corporations, such as the ability to respond flexibly to customer needs and quickly seize new opportunities. However, they often lack capital, technology, and expertise—weaknesses that can impair their resilience to unforeseen shocks.
The optimal strategy for SMEs combines cost-effective immediate measures, such as emergency plans and insurance solutions, with medium-term investments in digitization and supply chain diversification. Larger infrastructure investments should be made gradually once initial measures have proven successful.
Between 1993 and 2022, extreme weather events worldwide claimed over 765,000 lives and caused economic damages of $4.2 trillion. Storms alone accounted for 56% of these damages ($2.33 trillion), followed by floods at 32% ($1.33 trillion). These figures, highlighted by the EM-DAT International Disaster Database, underscore why climate resilience is indispensable for EU companies.
BaFin President Mark Branson highlights the complexity of current risks:
"The environment in which companies in the financial sector must operate is extremely challenging, as we lack relevant historical experience for many risk drivers—such as climate change, geopolitical upheavals, and technological leaps."
These uncertainties make it clear how important it is to actively integrate climate risks into risk management. Specialized solutions are needed here—this is exactly where Fiegenbaum Solutions comes in.
For EU small and medium-sized enterprises (SMEs), which make up 99.6% of all companies and secure 58.5% of jobs, investments in climate resilience offer not only protection but also clear competitive advantages. Dr. Fritzi Köhler-Geib, Chief Economist at KfW, explains:
"Climate protection investments make SMEs fit for the future. Companies that take the lead in climate protection have long-term competitive advantages, as CO₂ prices rise and customer behavior changes. In addition, climate-friendly products and processes are markets of the future. This secures growth and employment opportunities."
The numbers confirm this trend: Already a third of SMEs are planning climate adaptation measures, and many are making substantial investments in climate protection. The transformation is well underway.
Fiegenbaum Solutions supports companies in successfully managing this transformation process. With tailored consulting on topics such as climate risk analyses, net zero strategies, and lifecycle assessments, we help combine business models with climate protection and resource conservation.
The message is clear: Act now to remain successful in the long term. Those who act early not only minimize physical and regulatory risks but also secure a pioneering role in the markets of the future. This not only optimizes the handling of extreme weather events but also sustainably strengthens competitiveness.
Companies can better safeguard their supply chains against climate risks by first systematically assessing risks and vulnerabilities. This includes identifying dependencies, evaluating geographic challenges, and analyzing climate-related hazards along the entire supply chain. For guidance on supply chain climate risk assessment, see the CDP Supply Chain Program.
Some key measures that can help include:
These steps not only help reduce potential disruptions but also strengthen a company’s competitiveness and future viability.
To successfully meet the requirements of the Supply Chain Due Diligence Act (LkSG), small and medium-sized enterprises (SMEs) should first thoroughly analyze and transparently document their supply chains. A risk management system can help identify potential hazards such as human rights violations or environmental damage early and initiate appropriate countermeasures.
Another important step is clearly defining internal processes and responsibilities. Regular training for employees and suppliers helps raise awareness of due diligence obligations and makes implementation easier. In addition, industry-specific guidelines or collaboration with external consultants can provide valuable support to ensure legal compliance.
As legal frameworks continue to evolve, it is crucial for companies to regularly review and flexibly adapt their compliance strategies. This not only minimizes legal risks but also secures long-term competitiveness.
Companies can significantly improve their resilience to climate risks by strategically deploying modern technologies and investing in future-proof measures. Particularly helpful are AI-powered early warning systems that analyze weather data and provide advance warnings of extreme weather events. Climate data analysis tools also offer valuable insights to better assess risks and make informed decisions. In addition, investments in sustainable infrastructure are vital—this includes renewable energy, energy-efficient buildings, and waterproof construction methods.
In the EU, companies should also conduct a strategic risk analysis to identify vulnerabilities in their supply chains and operations. Another key step is developing and regularly updating emergency plans that enable quick and effective responses to extreme weather events. These measures are especially important for startups and small and medium-sized enterprises (SMEs) to remain competitive and crisis-resistant in the long term.