The Greatest Environmental Risks to Businesses

Many businesses depend on the environment as part of their operations, whether as a source of raw materials, an attractive locale for customers to travel to or other reasons. However, the very same thing that benefits a business can also be one of their greatest risks. Environmental threats such as natural disasters and extreme weather conditions have been cited as top global risks for several years now, yet many businesses are still not being proactive enough in mitigating these threats or managing their use of increasingly scarce natural resources.

Natural Disasters and Extreme Weather Events

One of the most prevalent environmental risks affecting businesses is the increasing frequency and severity of hurricanes, floods, earthquakes, drought and other extreme weather events. Between 1950 and 2000, FEMA recorded an average of 39 natural disasters per year in the United States. Since then, it has increased by 318% to 124 per year, on average, as of 2018. And these naturally-occurring threats are costly. Of the $337 billion in insured losses resulting from “disaster events” in 2017, $330 billion was the result of natural disasters alone.

The reality is that this is a risk that can not be completely mitigated. However, knowing which natural disaster and weather risks affect a particular business, can help business leaders plan and prepare for what can happen.

Preparing and Planning for Environment Risks

Environmental risks should be a critical part of both a business’s strategy and its risk management program. On the strategy side, business leaders should take a look at their use of natural resources, their supply chain’s use of natural resources, and other business decisions that might affect the environment in a negative way. As resources like water and oil become more scarce, the costs go up for those who use them. Businesses can both reduce their costs and reduce their impact by simply conserving or finding an alternative for the natural resources they use in their operations.

On the risk management side, businesses should already be planning for and prepared to deal with risk factors such as the potential for environmental incidents (pollution, contamination, etc), the possibility of health-related risks to staff and customers or the likelihood of liabilities caused by their products or services. There are several types of environmental insurance policies that can help cover costs resulting from sudden and accidental or gradual pollution or contamination events, and also can help businesses identify pollution and contamination risks before an event occurs.


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