CFOs May Be Held Accountable for Climate Change Catastrophes that Affect a Company's Bottom Line

FM Global’s, Report Master the Disaster Report: Why CFOs Must Initiate Natural Catastrophe Preparedness in 2019 and Beyond^[1] makes the compelling case for CFOs to explore the broader financial consequences of natural disasters, and to allocate capital towards loss prevention and business interruption.

Insurance policies are implemented as they are thought to absorb most property damage and business disruption losses, however, they do not cover all economic risk.  Market share, reputation, cash-flow and even potential growth opportunities may be adversely affected by a prolonged disruption, resulting in economic hardship for an organization. 

While companies may take the gamble that unpredictable events are not likely to occur in this earning year, this is taking short-term view of profits over long-term viability.  Devastating results can be the consequence, even with a moderate natural disaster.  FM Global’s CFO Kevin Ingram says that “The buck stops with the CFO.”  If a company is unprepared for a natural disaster, wide-ranging stakeholders including institutional investors, shareholders, Wall Street analysts, consumers and regulatory agencies will be privy to this information.

FM Global reviewed 10-K filings of nearly 100 public companies that experienced damage and disruption in 2017 from Hurricanes Harvey, Irma or Maria.  Findings saw losses ranging from a few million to hundreds of millions of dollars.^[2]  The U.S. Securities and Exchange Commission has clarified their position on climate change risks, instructing companies to treat these material risks from climate change like any other business risk.  This position will likely place CFOs facing hard questions if losses are incurred and no plans have been put in place to deal with these natural disasters.

Risk managers, who typically have an inward-looking role in their organizations, are charged with planning for risks that already exist.  While this can improve vulnerability for a company, a more global view is typically needed.  The CFO, with their C-Suite vantage point and outward-looking focus, has the ability to completely eliminate some of these risks.  For example, the risk manager may allocate money to fortify a critical plant against flood exposure, whereas the CFO has the influence to change the landscape entirely by moving the plant from a flood plain to higher ground, eliminating the flooding risk completely.

The bottom line is CFO’s will be on the hot-seat if a natural disaster has negative impacts on the company’s profitability and survivability.  Natural disasters have the potential to impact global supply chain, impact cash flow, and severely impact customer relationships.

For the complete picture, read FM Global’s Master the Disaster:  Why CFOs must initiate natural catastrophe preparedness in 2019 and beyond.  Click Here

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[1] FM Global. Master the Disaster: Why CFOs must initiate natural catastrophe preparedness in 2019 and beyond.  W00644_18 © 2019 FM Global (01/2019)

[2] Ibid