As Climate Week (20–27 September) puts climate risk in the spotlight, the record heat, drought and water stress experienced in many parts of the world this year are exposing vulnerabilities across global supply chains.
Repeated heatwaves and persistent dry conditions have put pressure on water resources, agriculture and river levels. For business, hot weather can reduce crop yields, constrain water-intensive production, increase energy demand, affect workers and overburden infrastructure. Low river levels and water shortages can also disrupt freight, manufacturing and energy production.
Extreme weather starts as a physical risk and can quickly become a financial one
These strains can change the availability and price of resources, affect workers and infrastructure, interrupt suppliers and ultimately hit costs, margins, cashflow and revenue.
For finance, the task is to turn weather warnings into financial planning. Finance teams need to understand where the business’s suppliers are exposed, quantify the potential cost of disruption and determine where investment in resilience is justified.
The burn
Recent research from ACCA shows why finance teams need to cost the consequences of a hotter world.
Looking five to 10 years ahead, survey participants identify water-related and physical climate risks including heatwaves, storms and wildfires as the biggest financial threats to supply chains. Resource and material scarcity also rank highly, alongside transition risks, emissions reduction requirements and supply chain governance and due diligence.
Current priorities remain more conventional: 64% identify regulatory and reporting compliance as a top-three supply chain sustainability priority, while 60% go for cost efficiency and financial performance. Just 28% see supply chain visibility and transparency as a top priority.
The gap between ‘today and tomorrow’ is significant. While businesses recognise the potential financial impact of climate and resource risks, today’s priorities remain dominated by compliance and cost.
Impact analysis
Extreme weather is becoming harder for businesses to treat as a series of isolated events. It can result in higher input, energy, insurance and alternative-sourcing costs, as well as putting pressure on margins and working capital.
Finance teams should be looking at resilience investment. Scenario analysis can help businesses understand the impact of weather extremes on revenue, cashflow and capital requirements, helping them determine where investment in more resilient infrastructure, suppliers, sourcing strategies and insurance is justified.
Heat, drought, flooding and water shortages can also place pressure on suppliers and workers, particularly in regions already facing difficult labour or operating conditions. Organisations will need visibility further down their supply chains to understand where environmental, human rights and financial risks are converging and where action is most urgently needed. Yet ACCA’s research found that 18% of respondents believe the biggest barrier to improving that visibility is the failure to prioritise human rights risks in procurement decisions, while 15% blame the unwillingness of suppliers to share information and 9% cite limited visibility beyond direct suppliers.
Water risk
Water may be one of the most important links between rising temperatures and financial performance. Understanding how prepared your organisation is for these risks and what needs to be done to strengthen its readiness is therefore increasingly important. Yet ACCA’s research points to a significant preparedness gap: 29% of respondents describe their organisation as only moderately prepared for water-related supply chain risks, 25% as slightly prepared and 10% as not prepared at all.
The priorities for improvement are revealing. Just under half (47%) identify a need to strengthen business continuity and disruption response planning, while nearly 40% are prioritising investment in physical and operational resilience, and nearly 40% are assessing supplier exposure to water-related risks.
Finance accordingly needs to look beyond the organisation’s own water use to understand where critical suppliers are located, how dependent they are on water and how drought or restrictions could affect production and costs. Water should be treated as a strategic input alongside energy, labour and raw materials.
Where to start
ACCA’s research highlights how water shortages can threaten infrastructure and energy supply, while flooding can directly affect property, suppliers and operations. It outlines the following ways to weatherproof the supply chain.
- Map critical suppliers and locations. Identify exposure to heat, drought, flooding, wildfire and water stress.
- Stress-test the financial impact. Model effects on costs, margins, revenue, cashflow and working capital.
- Look beyond tier one. Vulnerability may sit with suppliers or raw materials further down the chain.
- Build alternatives early. Consider diversified sourcing, alternative transport routes and strategic inventory.
- Improve supplier data. Better climate and water information can provide earlier warning.
- Understand water dependency. Identify suppliers, materials and processes most reliant on water.
- Put resilience into investment decisions. Compare the cost of adaptation with the potential cost of disruption.
Despite the apparent complexity, getting started is a straightforward process. Identify where the business depends most on water, quantify what disruption could cost, and prioritise action where the financial exposure is greatest.
Help and hindrances
AI and digital tools could give organisations greater visibility over increasingly complex supply chains. Over 30% of survey respondents say better risk prediction and early warning of supply chain disruption is a leading benefit of using AI. A similar number highlight improved monitoring of environmental impacts, while 26% point to support for sustainability reporting and due diligence.
The survey also identifies obstacles to adoption. Nearly 20% of respondents cite concerns about sharing sensitive data across supply chain tiers, 17% point to a lack of skills and expertise in applying AI to supply chain sustainability and reporting, and 16% have ethical concerns around AI-driven decisions affecting suppliers.
The technology also creates its own sustainability dilemma. Nearly 40% view AI’s impact on energy and water consumption as a moderate to very significant trade-off.
With Climate Week focusing attention on the climate challenge, the weather disruption of 2026 sounds a clear warning for businesses. Extreme weather starts as a physical risk, but for an unprepared supply chain, it can quickly become a financial one.
More information
The issues discussed in this article will be explored at ACCA’s Accounting for the Future conference in November in the session ‘Weatherproofing your supply chains’
