WHY BUSINESSES MUST INVEST NOW TO PREPARE FOR CLIMATE RISK

  • Michael Stuckings, Operations Vice President, Chief Engineer, Australia Operations

With climate risk top of the agenda, directors must ensure their companies are protected during extreme events, says FM Global Operations Chief Engineer Michael Stuckings.

The changing climate poses two main challenges to business resilience — uncertainty around how it will affect properties and operations, and how businesses can prepare to deal with those changes.

FM Global is seeing an increased urgency around climate risk among its clients in Australia and globally. According to a recent Natural Disaster Business Risk study, the vast majority of large companies report a level of exposure to catastrophes such as hurricanes, earthquakes, and floods — and 50–70 per cent acknowledge a lack of preparedness.

We believe companies should make near-term investments for long-term benefit when it comes to climate risk. The importance of doing so becomes most clear when looking at climate risk’s threat to business from a holistic perspective — beyond the immediate costs of replacing damaged equipment and facilities to the potential for lost market share, reputational impact, reduced growth and increased insurance costs.

Making the right decisions to address climate risk starts with having the right people around to ask the right questions. Without a clear picture of the risks, the odds of suffering an unexpected setback could increase significantly.

Expecting businesses to monitor every development and understand how those developments could impact their operations is unrealistic. That’s why FM Global has dedicated a Structures and Natural Hazards team, which actively reviews the latest climate science to ensure the most relevant insights reach clients. If clients are going to make major investments to offset risk, those risks must be thoroughly substantiated.

The bushfire threat

Whereas product or equipment impacted in a flood is potentially salvageable, this is rarely the case in a fire. It takes a longer time to recover, to get new equipment and stock, and recover market share.

Recommended steps to significantly reduce the risk for facilities located in or near a recognised bushfire-prone area include:

  • Remove accumulated vegetation and debris, including yard storage, from around the building perimeter and roof gutters. The primary way fires spread is by lifting embers ahead of the flame front.
  • Ensure equipment is placed in safe mode for expected loss of utilities. Shut down any HVAC systems, and if your operations are sensitive to smoke damage, consider relocation of stock.
  • Close the building envelope, including doors and windows. Seal gaps and openings such as vents using bronze or steel 2mm-aperture mesh.
  • Eliminate combustible materials from your construction.
  • Have a site-specific emergency plan in place ahead of the event. These identify specific risks and establish training for employees that can minimise chances of a disaster and help in recovery.
  • FM Global provides further details regarding recommended construction and protection features for facilities in the FM Global Property Loss Prevention Data Sheets.

A rising risk

After the fires came the floods — and a new range of risks. Mathematical calculations reveal that a building situated in a location with a one per cent chance of being flooded in any given year significantly increases to 26 per cent over a 30-year period.

Recommendations to reduce flood risk include:

  • Businesses considering purchasing a new facility can assess their risks with the help of partners and tools such as FM Global’s Global Flood Map, which can reduce the likelihood of establishing a key facility in recognised flood zones.
  • Not building in a hazard zone is best, but not always practical or possible. Designing for the hazard is. Evaluate/understand the flood risk and potential flood levels for new locations. Consider raising the ground.
  • Consider building better than local building codes require. One way to account for climate change is to design and protect buildings at a 500-year return level (instead of 50/100-year) in anticipation of a flood event that is more severe or less expected.
  • Rethink design and usage. One hospital designed its flood-prone, ground-floor space as a pool. Another office building designed its flood-prone, ground-floor space as meeting rooms. Avoid storing your most valuable equipment on the ground floor or in basements and use hard, water-resistant materials for floors and walls.
  • Consider flood walls or FM Approved permanent or temporary physical flood protections. Provide curbing or raised entry points to below-grade spaces.
  • Develop scenarios and contingency plans to get back up and running as quickly as possible following disasters.
  • Have a plan with defined action points that involves monitoring water levels, elevating sensitive equipment and stock to upper floors or areas that are not exposed.

When it comes to climate risk, we believe the majority of property loss is preventable, not inevitable. As a property insurer for one-third of Fortune 1000 companies and similar-sized organisations worldwide, FM Global is uniquely positioned to advise businesses on mitigating this challenge.

Taking a research- and risk-based engineering approach to dealing with climate risk and its impact on individual businesses is key, as is going beyond mere compliance with regulations. Prioritise practical solutions, informed by relevant science, to improve resilience to natural hazards by minimising property damage and business interruption.

This piece appeared in the April 2020 issue of Company Director magazine for the Australian Institute of Company Directors (AICD).