Introduction

In Module 1, we’ll be exploring the first of three main pathways by which climate impacts the economy. Physical risks arise when climate and weather events interact with physical assets and infrastructure in a manner that results in either direct costs (through property damage) or indirect costs (through disruptions in business operations)

When we think about direct physical risks, we often think only of those physical assets that we own—our stores, our facilities, our inventory. However, every node in a business’s value chain—from raw materials extraction to customer sales and service—can be exposed to direct risks from climate and weather hazards.

Regardless of whether those direct risks expose our suppliers, employees, customers, or the transportation infrastructure that links us all together, the impact may very well cascade onto business operations, costs and revenue stability. These are the indirect risks arising from the value chain’s exposure to direct risk in the value.