In 2022, natural disasters caused a staggering $313 billion in economic losses. Wildfires in Europe, flooding in Asia, and record-breaking heat waves in the U.S. are just a few examples of incidents that affect nearly all facets of businesses across many industries.

Addressing the progression of climate change—and protecting businesses, markets, and society from its negative impacts—is an industry-agnostic imperative that needs global collaboration.

Climate change is a significant source of economic volatility. As such, it will drive one of the largest reallocations of capital in history to spur innovation, protect communities, and reduce risk. Our 2022 Executive Risk Survey shows that 73% of leaders are putting time and resources into evaluating and considering the impact of climate change on decision-making and risk.

As a global professional services firm, this research supports exactly what we are hearing from clients: To respond to these challenges and take advantage of the opportunities there needs to be a shift in mindset from defense to offense when it comes to tackling climate change.

Here are three areas in which business leaders are telling us they want to take actionable steps to make that shift.

SOLVE FOR FUTURE CHALLENGES, NOT JUST CURRENT ONES

We need to help business leaders think ahead and take measures now to mitigate the severity of climate-related risks in the future. This requires a fundamental pivot from developing strategies based on historical data to taking a more forward-looking approach.

For example, one area where business leaders can anticipate climate-related effects is the health and wellbeing of their employees. From the disruption of food supplies to the spread of disease and the increase in weather-related disasters like wildfires and floods, climate change poses numerous challenges to mental and physical health. It is why wellbeing strategies are no longer a nice to have, but a must have.

Rather than waiting for a disaster to strike, leaders are now preparing their organizations to support their employees and their communities on an ongoing basis as opposed to only when a disaster hits. Wellbeing strategies, including the providing of resources to help employees and their families who are experiencing stress, anxiety, and depression can help address a variety of issues caused or exacerbated by climate change.

INCENTIVIZE AND FUND CLIMATE-POSITIVE SOLUTIONS

Large-scale policy initiatives like the Inflation Reduction Act are designed to spur progress by way of tax credits, grants, loans, and other government spending for clean energy and other climate-positive solutions. In the private sector, business leaders can also incentivize and fund projects to counter the effects of climate change. For instance, emerging companies innovating around climate solutions can take advantage of financing arrangements that use their intellectual property as collateral to secure funding to drive their growth. This creates a new path to capital for innovation driven companies to help speed their time to market.

In addition, both retail and institutional investors are engaging in impact investing. The United Nations Sustainable Development Goals (SDGs) serve as a blueprint for positively transforming the world in which we live, by ending poverty, safeguarding the planet, and ensuring prosperity for all by 2030. Investment portfolios that incorporate these and other standards can help investors direct capital to companies making a difference on sustainability initiatives.

On a larger scale, institutional investors are beginning to leverage catastrophe (“cat”) bonds to diversify their portfolios and help increase insurance coverage in the wake of climate-related disasters. In 2022, only 42% of weather- and climate-related economic losses were covered by insurance.

A cat bond is a special purpose vehicle (SPV) wherein the funds used to purchase a bond are kept in a dedicated amount for a period of time. If the catastrophic event against which the bond was issued occurs, the money goes toward covering losses. If the incident does not happen in the specified timeframe, the investors receive their funds back with interest. These investment vehicles tend to be uncorrelated to the financial markets and offer better returns than traditional high-yield bonds—and provide much-needed protection if and when needed.

Finally, voluntary global carbon markets are allowing companies to buy and sell carbon credits that represent certified reductions of greenhouse gasses in the atmosphere to support their net-zero commitments. Voluntary market carbon credit sales recently totaled $2 billion, and the Institute of International Finance projects sales will reach $50 billion by 2030.

COLLABORATE ACROSS DISCIPLINES AND INDUSTRIES  

Because climate change is such a complex problem, no single industry or discipline can solve it alone. Government entities, business leaders, academics, and others are realizing the need to apply all their capabilities and collaborate on a broader scale. In California, top wildfire researchers at the University of California, Merced, and the University of California, Los Angeles collaborated with Aon’s Impact Forecasting Team to implement the latest climate change science and research into Aon’s U.S. wildfire catastrophe model. The insight from this collaboration is helping to identify high-risk areas, determine where to invest in resiliency measures, and develop long-term strategies to manage risk.

These are just some examples of how to start playing offense.

Society is at a fork in the road when it comes to climate change. The great Hall of Fame baseball player, and sometime philosopher, Yogi Berra once famously said, “when you see a fork in the road, take it.” That is our great opportunity.

There are two paths in front of us: one toward defense and one toward offense. I am confident that if we take the path toward innovation, collaboration, and building a more resilient future we will have turned the challenges in front of us today into opportunities that will deliver a better tomorrow.