Climate risk: It's about more than the weather for today's businesses

Global warming worries

There has been a renewed focus on climate change risk post-COVID-19 after it dropped down the ranking during the pandemic years as companies dealt with more immediate challenges. Awareness among businesses of the need to deploy climate resilience measures is growing, driven by the mounting costs firms face from regulatory compliance on disclosing physical climate risks, as well as operational disruptions caused by more extreme weather events and ecosystem degradation.

The year 2024 was another one of extreme weather and new climate records. It was the hottest year on record, with global temperatures exceeding 1.5°C above pre-industrial levels for the first time. With an active hurricane season, severe thunderstorms and floods impacting the U.S., Canada, Spain, Central Europe, United Arab Emirates and Brazil, among others, it was also the fifth year in a row in which insured losses from natural disasters worldwide exceeded the $100 billon mark. Severe convective storms caused $50 billion of insured damage in the U.S. alone during 2024.

It is little surprise then that climate change delivers a standout result in 2025's Allianz Risk Barometer. It also ranks as a much greater concern for smaller companies (less than $100 million annual revenue), climbing three positions year-on-year to No. 6.

What we are seeing is a complex picture of climate change linked to natural disasters and physical hazards. For example, Hurricane Beryl in 2024 was the first Category 4 storm to form in June and the earliest-forming Category 5 on record. Climate change has also exacerbated the effects of the extreme flooding that hit southern Spain last year, not to mention the recent devastating wildfires in Los Angeles.

In addition to climate change, natural catastrophe losses are also affected by other factors, such as claims inflation, higher value assets, population changes and resilience. While climate change may only be partly responsible for what we are seeing, with an increase in the frequency and severity of extreme events, it is making things more unpredictable.

Business challenges

Physical damage and business interruption are the two major impacts of climate change that companies fear most, according to Allianz Risk Barometer respondents. Given their potential effect on profitability, downtime, production or service delivery. The environmental impact (e.g., extreme temperatures, resource scarcity, biodiversity loss) ranks third. Extreme temperatures can drive up energy demand, which is especially critical for industries reliant on cooling systems, potentially leading to operational cost increases. Water scarcity can threaten businesses reliant on water for operations, while biodiversity loss undermines ecosystem services which many industries depend on, for example, agriculture or maintaining crop yields.

Managing climate change transition risk (e.g., decarbonization and net zero strategies) ranks as the environmental, social, governance (ESG) and sustainability risk trend of most concern to companies for the first time, the Allianz Risk Barometer results also show. The sheer volume of regulations, increasing reporting requirements, policy uncertainty and data transparency are cited as the most significant challenge.

Mitigation measures

The top three actions companies are taking to mitigate the direct impact of climate change according to respondents are:

1. Adapting or increasing insurance protection (incl. alternative risk transfer);
2. Adopting carbon-reducing business models (e.g., recycling and reducing waste, encouraging sustainable travel, developing more sustainable supply chains); and
3. Creating contingency plans for climate-related eventualities (e.g., response and recovery, assessing critical systems and resources).

Building resilience goes beyond regulatory compliance and risk reporting to taking proactive measures to protect business assets, employees, and operations. Physical measures are direct actions to protect infrastructure and assets from climate risks. Examples include flood barriers, sea walls, and flood-proof building materials. Nature-based solutions involve restoring or protecting natural ecosystems to reduce climate risks. For example, green open spaces can help to cool air while unpaved areas can reduce the velocity of stormwater. Behavioral changes are vital for driving effective resilience strategies. These include developing and practicing emergency plans, training employees on what to do during extreme weather, and educating communities on best practices.

Click here to read the full 2025 Allianz Risk Barometer. A version of this article first published in  the 2025 Allianz Risk Barometer and is republished here with permission.

See also:

• NAMIC calls on Congress to pass wildfire prevention legislation
• Is there a lesson for Florida in California's wildfire crisis?
• More people are living in the riskiest wildfire zones
• Redfin: The windiest cities in the U.S.