Step 1:

Understanding climate change impacts

Climate change: Direct and indirect impacts

Impacts of climate change are different for each company. Impacts depend on the location as well as the production processes of a company.

Impacts can be classified as either direct or indirect: direct impacts damage buildings and plant processes straightaway. For example, machinery and raw materials may be damaged and workers may be less productive during heat waves. Indirect impacts affect a company by way of an impact on another system outside of the company’s control, for example changes in supply and demand, logistics, regulations, impacts on wider stakeholders, like the surrounding community, and financing. Processes and buildings may also be affected by indirect impacts. An indirect impact is, for example, if the sewage system of a company overflows because a flood affects surrounding plants but not the company's own premises. Many impacts result in reduced profitability. For example, prices for materials may rise or delivery of materials is delayed. Other impacts may not be related to profitability. For example, in response to climate change, regulations may make entire processes illegal. Or banks may only offer credit at a higher premium in particularly affected regions.



Direct and indirect impacts of climate change on companies
Source: adelphi

A company that anticipates climate change impacts and plans ahead to tackle them is better prepared to face climate change challenges. This is called adaptation.

Impact areas – a typology