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May 7, 2008

82% Of Execs Say Climate Change Will Alter Their Business Models

Eighty-two percent of senior finance and risk managers believe global climate change will require changes to their business models in the years ahead. Yet, when it comes to taking proactive steps to manage their weather risk, 51 percent concede that their companies are not well prepared to cope with the current day-to-day economic risks posed by the weather.

The study, commissioned by CME Group and Storm Exchange, also found that just 42 percent of those surveyed said their companies have attempted to quantify their exposure to the weather, and only 10 percent had used weather hedging strategies (e.g., derivatives, options, futures, etc.) to limit that exposure. However, of those respondents who said their companies have used weather hedging tools, 86 percent said they found them useful.

A report will be made available this month. Some of the key findings include:

• Extreme Exposure: 59 percent of senior finance and risk management executives said their companies’ exposure to risks stemming from weather volatility meant that the impact on their financial performance could be “significant” (38%) or even “severe” (21%), and that they need protection from it.
• Increased Weather Volatility: 34 percent of all companies surveyed said the weather has become more volatile in recent years; that number jumps to 43 percent in the energy and agriculture sectors.
• Forced Change: 82 percent of those surveyed said they may have to make changes to their business models over the long term to cope with climate change and weather volatility.
• Day-to-Day Weather Risk is High: 51 percent of respondents said their companies are not well prepared to cope with the day-to-day economic risks of the weather.
• Energy Companies Pioneer Weather Hedging: 74 percent of energy company executives said they have attempted to quantify the impact of weather volatility on their businesses, making energy the lone industry where companies have made a systematic attempt to quantify the impact of weather volatility on their business. By contrast, only about one-fourth of agriculture and retailing businesses have made the effort.
• Hedging Works: Of those respondents who said their companies have used weather hedging tools, 86 percent said they found them useful.

The Storm Exchange/CME weather risk survey was conducted via telephone by Andrews Research Associates in February and March 2008 and included 205 senior-level finance professionals, including CFOs, CEOs, corporate treasurers and risk managers at predominantly middle market and Fortune 1,000 firms in weather-sensitive industries in the U.S. and Canada. The industry sectors covered by the survey include energy, agriculture, retail, construction, and outdoor entertainment. The results of this survey are statistically accurate to within ±7 percentage points.

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