Uncovering physical risk through scenario planning and spatial finance

3) Material risks and opportunities quantification. To communicate climate-related risks and opportunities in the language of business, our team used stochastic “uncertainty” modeling to quantify the probability of financial impacts for each future climate scenario and time horizon. Here’s how risks were quantified across the retailer’s priority focus areas:

• Asset-level physical risk: Increase in financial losses (e.g., expenses and self-insured losses) under modeled future climate scenarios.
• Water stress: Increase in water utility spend and business interruption costs (e.g., annual days of disruption, lost sales of water-dependent product categories, etc.).
• Commodity risk: Percent and volume of future supply at risk for nearly a dozen commodities under various future climate scenarios (mapped against projected business growth).  

For example, under the most extreme future climate scenario, our analysis saw significant (>50%) decreases in land suitability for key commodity sourcing regions by 2050, and certain drought-sensitive commodities could see yield impacts approaching 40% of procurement.

4) Integration of insights into adaptation & resilience planning. Using the results of the analysis, our team helped the retailer develop a place-based strategy for prioritizing interventions that better balanced mitigation versus adaptation investments and near versus longer-term actions. The retailer is actively leveraging insights from this project to:

• Build the business case for regenerative agriculture interventions to address supply chain risks to key commodities, particularly animal proteins.
• Enhance operational resilience by implementing water efficiency measures and backup systems in high-risk locations.
• Identify opportunities for market differentiation through supplier engagement capabilities and potential new business model opportunities. 

Project outcomes

Our retail client now has location-based, asset-level insights on climate-related risk and opportunity across its operations and agricultural supply chains – helping them to move beyond compliance and toward strategic decisions that can secure their supply chains and build long-term competitive advantage.  

Following this project, the team is equipped to:

• Gain executive buy-in on targeted adaptation & resilience investments.
• Integrate planetary risk and opportunity into core business processes.
• Unlock competitive advantage and capitalize on changing consumer preferences.
• Future-proof supply chain and business model.
• Shift from a compliance mindset to value creation and growth through sustainability. 

Key wins