Extreme weather events, including record-breaking temperatures, severe droughts, and hurricanes, significantly impacted Latin America and the Caribbean in 2024.

Brazil faced unprecedented flooding in the Rio Grande do Sul region. At the same time, the direct health risks linked to climate change are becoming increasingly apparent, from heat stress to wildfire smoke.

Globally, climate change already accounts for US$143 billion per year in extreme weather costs. As the world keeps warming, things are going to get worse.

Companies must adapt to this changing reality and invest in climate-smart solutions to protect themselves and their stakeholders from the worst impacts of climate change.

Assessing Risks

The first step is to understand a company's present and future risks. Such assessments can reveal how existing natural hazards will intensify over time or highlight new challenges.

For example, a company might find that some operations are at heightened risk of flooding when considering climate models, even if historically, those were rare.

Engaging with experts, using climate modeling tools, and collaborating with local communities help companies better understand the likelihood of future risks and how they might evolve.

The second step is understanding what the company is already doing to address these risks and identify action areas.

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Building resilience is a process: a company at risk of flooding may already have an emergency preparedness and response procedure for storms and earthquakes, which can be augmented to cover floods.

The same company may identify the need for further investments in infrastructure, such as drainage systems, flood barriers, or elevation of utilities, to climate-proof its production site.

Finally, a climate risk assessment is an ongoing task. Companies need to develop the capacity to monitor, implement, and adjust as necessary.

It is essential to assign clear responsibility for climate risk management and recognize that managing climate risks requires collaboration across the entire organization.

This is the case as climate risk assessments can reveal vulnerabilities across the company, including in supply chains and operations, from impacts on workers, physical assets, transport routes, or communities.

Building Resilience

An IDB Invest client in Brazil that manages wastewater treatment plants integrated mitigation measures into their project design in response to increasing climate risks.

Located on floodplains, these facilities have experienced challenges from flooding during extreme weather events, which are expected to become more frequent and severe due to projected changes in precipitation patterns.

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The company responded by incorporating engineering solutions into the planned expansions of its facilities to enhance resilience to future flooding.

The company will also implement a Natural Disaster Risk Management Program to protect the infrastructure and ensure the safety of employees by preparing for potential floods and water overflow.

This will contribute to broader urban and climate resilience, in line with Brazil's National Plan for Adaptation to Climate Change.

An agribusiness client has implemented climate resilience strategies by requiring its critical suppliers to transition from monoculture to agroforestry systems.

After conducting studies over the past 15 years, the client found that agroforestry plantations are more resilient to extreme weather events and offer diversified income sources for farmers.

This approach helps mitigate climate risks and supports sustainable livelihoods, aligning with broader environmental and economic goals.

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To support clients in building climate resilience, IDB Invest applies a Physical Climate and Natural Disaster Risk Methodology to its projects.

The methodology assesses projects' climate risk in line with the adaptation goals of the Paris Agreement and identifies climate adaptation opportunities that benefit clients and communities.

Win-Win

When done right, adaptation has tremendous benefits in terms of avoiding losses and business interruptions.

Many solutions we see our clients adopt also have co-benefits for ecosystems and communities.

One example is using nature-based solutions like mangroves as flood and storm defenses, which provide a carbon sink and boost biodiversity.

While the specific adaptation measures are specific to every company's context and needs, ignorance is never bliss regarding climate change.

A risk assessment is a prudent step to support informed decision-making and navigate our changing climate with open eyes.

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