Climate risks and consequential damage from climate change 2023

Reporting on extreme weather events such as heatwaves, heavy rain, droughts and storms and the resulting massive damage has increased significantly in recent years. Due to international networking, companies are no longer only affected by local weather phenomena at their own production sites, but also by their impact on their own global value creation network.

Over the past decade, climate protection measures have been at the centre of the climate change debate. Expanding the topic to include a triad of climate protection measures, the avoidance of climate risks and the mitigation of climate-related damage is a new perspective that is finding its way into the economy. However, a clear distinction between the three areas is often still lacking in practical market analyses. However, if you look at the aspects from a corporate perspective, a clear differentiation is possible, as we show in the study.

Until now, the discussion has focussed more on value preservation, which was strongly driven by regulatory requirements and therefore left little room for manoeuvre. The topics of protection against climate risks and measures to reduce the consequential damage of climate change are changing the perspective towards opportunities for value enhancement. This is because companies can utilise their strategic freedom of choice both in the scope of measures to combat climate risks and when deciding on new products and services to mitigate foreseeable consequences.

45 per cent of the companies surveyed perceive a change in demand in Germany that is attributed to climate risks and consequential damage caused by climate change. A shift in demand and the resulting pressure to adapt their own product range is perceived even more strongly in the global value creation network (49 per cent). 42 per cent of companies are noticing an impact on their raw material and energy supply in Germany, while 58 per cent are observing a shortage of resources in the international value creation network. Larger companies are more aware of climate risks and consequential damage than small and medium-sized enterprises.

The majority of industrial companies in Germany do not fully consider climate risks and consequential damages in their own risk management system (RMS) and run the risk of suffering considerable damage. The change in demand due to climate risks and consequential damage is most frequently taken into account in the RMS, followed by resource scarcity and supply chain disruptions.

Activities and investments to reduce climate risks or mitigate climate-related damage are an important factor for the long-term success of many companies. Most participants in our survey are prepared to support climate protection measures, but are less willing to sacrifice sales, revenue or margins. However, it is conceivable for almost half of the large companies to invest a significant proportion of their turnover in the "green transformation".

In the short term, many companies only see a small potential for increasing turnover, but there are also companies that recognise greater potential. In the medium term, around three out of ten companies identify more than five per cent potential for increasing turnover with a product and service portfolio that can implement solutions to protect against climate risks or mitigate climate-related damage. 

This trend will continue in the long term. Companies with an annual turnover of less than 250 million euros are the most optimistic. Across all participants, the short-term turnover potential was estimated at an average of 3.3 per cent, the medium-term turnover potential at 12 per cent and the long-term turnover potential at 26.7 per cent.

This shows that many manufacturing companies hope to realise a high increase in turnover, particularly in the medium and long term. It is therefore very important to recognise the opportunities that arise and to actively engage in this area.

Learn how companies assess climate risks and prepare for them. What contribution can they make to minimising damage? What activities and investments make sense to reduce climate risks or minimise the consequences of climate change?

Our study, which we conducted in collaboration with the German Engineering Federation (VDMA), surveyed 235 decision-makers at German companies. The results provide insights, particularly from the mechanical and plant engineering and automotive sectors. 

Other topics covered in the study:

• Measures for active climate risk or climate impact damage management,
• Development of products and services for climate impact reduction offer high sales potential,
• Prerequisites for tapping future sales potential,
• Categorisation of the results by our ESG experts.