The risk you can’t insure away

Sarah Bogle MInstD

Climate adaptation is often treated as an asset problem, but the value most exposed to climate change may sit in people, capability, relationships and place.

When climate risk comes to the board table, the first questions are often practical ones. Is the asset insured? Is the business continuity plan current? Are there alternative suppliers? Could production move if the site became too exposed?

They are reasonable questions, but they can also create a false sense of control.

Insurance may repair a building or replace damaged equipment. Outsourcing may keep production moving for a period. Relocation may sometimes be necessary. But these responses do not fully capture the value a business builds in a place over time: skilled people, supplier depth, customer confidence, local knowledge, community trust, cultural legitimacy and the everyday systems that allow work to happen.

As physical climate impacts become more immediate, directors may need to spend less time asking whether risk can be transferred and more time asking what cannot readily be replaced.

Seeing the risk before it breaks the system

Mahindra Group’s work on heat stress in India offers one way to think about this more broadly. The company has described extreme heat as a present-day operational and financial risk, not only a public health issue.

Its heat-stress adaptation work is framed around protecting workforce health, while also addressing productivity losses, operational disruption and supply-chain disruption.

The exposure reaches beyond buildings, machinery and physical stock. It includes whether people can continue to work safely and productively in the places where the business and its supply chains operate.

Mahindra has identified climate adaptation as part of its ‘Planet Positive’ strategy. Its  heat-stress response covers awareness, capability building, governance, protection guidelines and practical measures for workers exposed to heat. This places adaptation within operational resilience, workforce protection and business continuity, rather than in a separate environmental programme.

By acting before a single catastrophic failure, Mahindra is recognising that climate conditions can steadily erode performance, safety and reliability long before an acute event appears on the risk register.

A board focused only on insured assets may miss the more important question: what conditions need to hold for this business to keep operating well in this place?

What becomes visible after disruption

Closer to home, Bremworth’s Napier experience shows what can become visible after disruption.

Cyclone Gabrielle heavily damaged the company’s Hawke’s Bay facility, taking most of the site offline. To maintain carpet production, Bremworth moved to a hybrid yarn supply model, including more external and offshore processing.

More than two years later, Bremworth announced a $6 million investment in its Napier plant to reinstate key yarn-making equipment. The company said the investment was designed to improve efficiency, quality control and lead times, while supporting a return to domestic production and local employment.

Chief executive Craig Woolford described the investment as being “not just about rebuilding production but also restoring local capability, building resilience and bringing jobs back to Hawke’s Bay”.

The investment recognises that the value at stake was not only in the damaged equipment. It was also in local capability, production knowledge, workforce availability, quality control, responsiveness and the link between New Zealand manufacturing and market expectations.

The company has said the expansion is expected to reduce lead times from up to six months to six weeks, cut yarn inventory by half and support future export growth, including interest from the United States and Australia.

The return is still to be realised. It will depend on execution, demand, workforce availability and the company’s ability to turn restored local capability into commercial performance.

Reactive adaptation can still be strategic, but it often happens after options have narrowed. Capital has already been lost. Temporary arrangements are already in place. Customers, staff and suppliers may already have adjusted. The board is no longer simply choosing the best adaptation pathway – it is choosing within the constraints created by the disruption.

The value outside the asset register

Mahindra and Bremworth make the value of place visible at different points in the adaptation cycle. Mahindra’s approach suggests a business is trying to identify climate-exposed workforce and operational dependencies before they become a crisis. Bremworth’s experience shows how disruption can reveal the importance of local capability after it has been interrupted.

Some risks can be transferred. Some value cannot.

A site can be insured. A supplier can sometimes be replaced. A process can be outsourced. But experienced people, tacit knowledge, trusted local relationships, regional identity, customer confidence and cultural legitimacy are much harder to recreate once lost.

Climate adaptation therefore requires judgement as well as risk management. Directors do not need to protect every location at any cost, but they do need to understand what would be lost if a place, workforce or local system stopped being available to the business.

The most useful adaptation conversations may begin with a simple question: what are we assuming will still be there when we need it?

Three practical moves for directors

First, look beyond the insurance schedule. Ask what would actually be restored after a climate event and what would remain exposed – workforce availability, quality, customer access, supplier reliability, trust and local permission to operate.

Second, bring non-transferable value into view. Board papers should identify the people, relationships, infrastructure dependencies, local knowledge and cultural connections on which the business relies.

Third, consider where early investment would preserve choices. Adaptation is easier before disruption sets the terms. Once a climate shock has exposed the value of place, the board may still be able to respond, but the options are usually fewer, the costs higher and the returns less certain.

Sarah Bogle MInstD is a senior transformation, climate and resilience leader with more than 30 years’ experience across government, infrastructure, financial services and advisory. They are Co-Convenor of the Aotearoa Society of Adaptation Professionals | Rōpū Urutaunga Aotearoa, and GM Client and Executive Programme Lead for the Toitū Envirocare Future Fit Programme.