Navigating the New Normal: How to Protect Value Chains from Physical Climate Risk  

Systemic Supply Chain Shocks

Recent extreme weather events across the world demonstrate how physical climate risk directly erodes corporate earnings and operational stability. West African heat and drought saw cocoa prices surge by 178% in 2024, prompting major food manufacturers to reduce profit forecasts. Traders are currently monitoring El Niño developments, as even brief weather anomalies can cause concerns over bean yields. Disruption extends well beyond the field through secondary perils; in 2024, severe water stress drained freshwater reserves feeding the Panama Canal, forcing a 36% cut in vessel crossings and creating global shipping choke points, logistical disruptions and mounting costs to companies. 

“We are seeing a proliferation of climate events happening with an increase in secondary perils, such as drought impacting transportation,” said Tom Harvey. “These risks may have slipped under the corporate radar a few years ago, but they have quickly become impossible to ignore. Today, they are a critical piece of the puzzle for any organization looking to manage exposure and build long-term resilience across their entire corporate footprint.” 

The Super El Niño Disruption 

There is a huge amount of uncertainty today because we’re in unprecedented territory. Supercharged by an already warmed climate baseline, the unfolding El Niño represents an unprecedented short-term climate stress test. Risilience has modeled the 2026-2027 El Niño across multiple stress test scenarios that focus on eleven staple food crops to help organizations quantify their supply chain exposures and build forward-looking supply security. 

Tracking toward sea surface temperatures four degrees above historical averages, this El Niño threatens the world’s most critical agricultural breadbaskets. With food supply chains already strained by cost inflation, worst-case stress tests indicate that up to 17% of key global crop production, representing $375 billion in economic value, is at risk – threatening price surges of up to 150% across concentrated commodities. While the immediate effects of El Niño are already unfolding globally, the event is expected to peak in November 2026. The full operational and economic consequences will continue to ripple out through 2027 and beyond as these initial climate shocks propagate across global supply chains. 

The extreme volatility of the El Niño climate event has pushed physical risk onto the boardroom agenda. It stands as a powerful proof of concept for global disruption, forcing a critical shift in focus toward long-term adaptation, geographic diversification, and systemic resilience. Businesses are increasingly focusing on resilient and regenerative agriculture as a shield against climate extremes. By investing in these practices, companies can build natural buffering capacity directly into their supply chains, enabling them to weather the worst of these compounding environmental impacts.

Five Steps to Building a Climate-Resilient Supply Chain

Building a robust defense against long-term environmental volatility requires companies to advance through a practical five-step framework: 

1. Establish Supply Chain Visibility: Gain granular, multi-tier visibility into sourcing locations to identify hidden dependencies and geographical risk concentrations. 
2. Quantify Financial Exposure: Overlay sourcing footprints with environmental hazards to determine materiality, quantifying bottom-line vulnerability using location- and commodity-specific value-at-risk metrics. 
3. Prioritize and Fund Interventions: Identify strategic adaptation options, such as sourcing diversification or regenerative agriculture, and model their expected return on investment to unlock required capital. 
4. Track and Monitor Progress: Assign clear internal risk ownership across operations and actively monitor the rollout of mitigation measures against corporate targets. 
5. Screen Proactively to Avoid Risk: Shift from reactive remediation to embedding forward-looking climate screening into future procurement and sourcing decisions, avoiding high-risk exposures before contracts are signed. 

How to Forward Plan for Proactive Avoidance  

Physical climate risks are accelerating rapidly, and the disruption to global supply chains has firmly captured C-suite attention. With these exposures now directly impacting the bottom line, it’s critical that companies transition from a reactive posture and start managing these physical risks proactively.

The Risilience approach centers on moving organizations from defensive reactions to proactive, forward-looking risk avoidance. Recognizing that the fifth step of the resilience framework represents the greatest operational hurdle, our modeling development is focused on new capabilities that allow procurement and risk teams to evaluate prospective sourcing regions, test specific adaptation interventions, and quantify the direct return on investment before capital is committed.