Climate change and the increasing volatility of severe weather events like storms, floods and heatwaves impact retailers through store closures, supply chain disruption and unpredictable product demand for retail, leisure and hospitality goods and services.
Retailers alone lose around $1 trillion every year due to weather-related disruptions globally, according to research featured in a National Retail Federation white paper.
Alongside this, climate and sustainability regulations are evolving globally, creating what can feel like onerous data-gathering and reporting obligations.
So, how can your retail, leisure or hospitality business manage the risks, make the most of the opportunities while meeting disclosure and reporting requirements? In this insight, our industry specialists take a closer look at industry-specific risk drivers before offering five ways you can manage them effectively and efficiently.
According to WTW’s Global Retail Risk Outlook, 55% of respondents of the total 700 from the retail industry overall said no retail business can afford to ignore issues such as climate change and pollution. This figure rose to 63% for health and beauty business respondents.
With growing public awareness and tightening regulation, retailers are under pressure to address challenges such as emissions in the supply chain, which account for more than 75% of total emissions, according to a 2024 report from the MIT Center for Transportation & Logistics and the Council of Supply Chain Management Professionals.
The annual carbon footprint of the hospitality industry, meanwhile, is estimated at 3% of global carbon emissions in 2022, according to the United Nations World Tourism Organisation (UNWTO). One-third of these emissions are produced by hotel operations, while broader tourism activities account for approximately 8% of emissions.
Energy-intensive operations, such as those in restaurants, cafes, bars and visitor attractions, exacerbate environmental impacts through high electricity usage, water consumption and waste generation. Transportation, both for guests and employees, adds to the carbon footprint and also makes the sector vulnerable to stricter emissions regulations.
So, how can your business manage the many risk areas more effectively?
01
With climate hazards becoming more frequent and severe, being proactive in identifying and managing physical climate perils, such as extreme weather events, floods, heatwaves, droughts and wildfires is essential.
Geospatial risk analytics can also help you evaluate exposures to climate, large-scale natural hazards and environmental risks to help inform more effective risk management and better financing choices that trade-off mitigation, adaptation and risk transfer.
For example, imagine you operate a chain of beachfront resorts and hotels in regions increasingly vulnerable to sea-level rise, tropical cyclones and extreme heat. Geospatial analytics can help you map your exposure and guide you through the possible changes in frequency and severity of these risks, supporting long-term planning and resilience and more efficient risk transfer decisions.
02
Accessing industry-specific climate insight designed to identify and quantify impacts on future revenue, opex and capex across multiple climate transition scenarios can help you develop more resilient operations and business models.
Being able to assess the impact of evolving regulations, shifting consumer behaviour and technological innovations robustly is likely to define the winners and losers in the transition to net zero in retail, leisure and hospitality. By understanding these transition risks, your business can capitalize on new opportunities, as well as manage the risks more efficiently.
Let’s say you're a large UK retail chain. You could analyse the impacts of evolving regulations, consumer preferences and technology trends on your operations and profitability. This will help you to prioritise, for example, energy-efficient upgrades across stores, shifting to sustainable suppliers or aligning your products with growing demand for low-carbon products and services.
03
Climate disclosure compliance may seem onerous, but your retail, leisure and hospitality business can reframe this for competitive advantage.
For example, the EU’s Corporate Sustainability Reporting Directive (CSRD) requires businesses to disclose detailed information on how climate risks affect their operations, strategy and financial planning. Countries globally are introducing similar requirements for climate in line with International Financial Reporting Standards (IFRS). You could also see this as an opportunity to build investor trust, attract sustainability-conscious consumers and differentiate your brand in a competitive market.
Over the long term, retail, leisure and hospitality businesses that are proactive and transparent on climate and sustainability reporting may find greater favour with customers and investors.
04
Coverage adequacy analysis can help you identify vulnerabilities and offer more clarity and security in an unpredictable climate landscape. Let’s say you run a UK-wide pub and restaurant chain. A coverage adequacy analysis reveals your business is not fully protected against flooding risk or supply chain disruptions from extreme weather today with the gap projected to increase in the next five years. By identifying these gaps, you can update your policies to include climate-specific business interruption and equipment failure coverage, ensuring financial stability and operational resilience as climate risks grow.
05
You can significantly mitigate climate and sustainability risks and capitalize on the related opportunities by integrating detailed analytics into your core business functions.
For example, integrated analytics could help a hotel chain identify a growing preference for eco-conscious travel by analysing booking trends, guest reviews and social media sentiment. The chain might then design premium ‘green stay’ packages featuring carbon-neutral rooms and locally sourced cuisine, providing competitive edge over competitors, boosting revenue and brand loyalty among climate-conscious travellers.
Discover more effective and efficient ways for your retail, leisure and hospitality business to protect your people and operations. Get in touch with our industry specialists.
