Impacts of Climate Change on Global Supply Chain Resilience and Corporate Operating Costs, and Strategic Response Framework

Climate change has evolved from a distant future threat to a real risk directly impacting corporate bottom lines. Taking the “hemorrhoid medication production halt” incident as an entry point, climate change impacts global supply chain systems through multiple channels such as raw material shortages, production fluctuations, and cost surges[1]. This phenomenon reveals the deep-seated vulnerabilities of modern supply chain networks: when extreme weather events occur frequently and raw material producing areas are hit by climate disasters, the entire value chain may face disruption risks.

According to the 2025 Environmental Information Disclosure Report jointly released by CDP and Sina Finance, the financial impact of environmental risks on enterprises can no longer be ignored—by 2050, global economic losses will reach as high as $38 trillion, equivalent to more than one-third of global GDP[2]. For enterprises, this means climate risk management has evolved from a “nice-to-have” compliance requirement to a core strategic issue that determines survival and development.

This paper will systematically analyze the mechanism of climate change’s impacts on global supply chain resilience and corporate operating costs, and based on the TCFD framework and international best practices, propose specific pathways for enterprises to integrate climate risk into strategic decision-making.

Climate change directly impacts all links in the supply chain through increasingly frequent and severe extreme weather events. The World Economic Forum’s 2024 Global Risks Report points out that climate disasters damage fixed assets or prevent their efficient operation, with impacts covering the following aspects[3]:

are manifested as: Extreme high temperatures lead to a surge in cooling demand for data centers and factories, and power shortages may cause production disruptions; tropical cyclones and floods damage production facilities and equipment, leading to business interruptions and repair costs; water stress threatens high-water-consumption industries such as pharmaceutical production, as these processes require large amounts of water to ensure product safety.

are also significant: Tropical cyclones and floods damage distribution networks, leading to repair needs and extended downtime; extreme high temperatures damage cold chains, affecting safe storage and transportation and increasing loss costs; disasters such as floods and droughts cause transportation route disruptions, increasing logistics costs and the risk of delivery delays.

In terms of specific cases, the 2019 Australian bushfires caused supply chain disruptions for key components, affecting production in multiple industries worldwide[4]. In 2021, extreme cold weather in Texas, U.S., caused pipeline ruptures at chemical plants; to prevent explosions, the plants were forced to carry out “flaring emissions,” releasing large amounts of toxic chemicals directly into the atmosphere and causing severe local air pollution[5]. In 2023, a semiconductor factory in Texas, U.S., saw its cleanroom temperature control system collapse after temperatures rose sharply from -18°C to 35°C within 72 hours, leading to a 22% drop in yield[5].

In addition to physical risks, climate change also has far-reaching impacts on enterprise supply chains through multiple transition pathways such as policy, technology, and market. A CDP report shows that policy risk is the primary climate-related risk facing enterprises, accounting for 28%, followed by acute physical risk (19%) and chronic physical risk (14%)[2].

: The construction of global carbon markets is accelerating, and carbon pricing mechanisms are continuously being strengthened, putting enterprises under pressure from rising carbon costs. Taking a manufacturing enterprise as an example, if its annual greenhouse gas emissions are 500,000 tonnes of CO₂ equivalent, and the carbon emission cost rises from $20 per tonne to $50 per tonne, the annual carbon emission cost will increase from $10 million to $25 million[6].

: Consumer preferences are shifting toward more sustainable products and practices, forcing enterprises to re-evaluate their supply chains, which may lead to major changes in procurement, production, and distribution strategies. Meanwhile, low-carbon technologies are developing rapidly, and traditional products and services face the risk of replacement; if enterprises fail to transition in a timely manner, they may lose market share and competitive advantages.

The impacts of climate change on supply chains have significant transmission and amplification effects. The 2024 Climate-Related Financial Information Disclosure Report of Bank of China points out that the “climate whiplash” phenomenon caused by climate disasters occurs frequently, repeatedly disrupting the stable operation of industrial systems[7].

Taking the “hemorrhoid medication production halt” incident as a typical case, the main producing areas of carrageenan (extracted from seaweed), a key raw material for the medication, were hit by climate disasters, leading to raw material supply disruptions. More critically, due to the high concentration of suppliers for this raw material and limited alternative sources, the entire production system collapsed. This case profoundly reveals the inherent vulnerability of modern supply chains:

[8].

According to PwC’s 2025 Survey on Environmental, Social and Governance Reports of Hong Kong Listed Companies, 82% of Hong Kong listed companies have disclosed the impacts of climate change risks and opportunities on their business models and value chains, including physical risks and transition risks[9]. However, only 59% of enterprises have conducted climate scenario analysis to identify climate-related risks and opportunities, indicating that most enterprises are still in the reactive response stage and have not yet established a systematic risk identification and assessment mechanism.

The direct impacts of climate change on corporate operating costs are reflected in multiple dimensions:

: A joint study by the World Economic Forum and S&P Global, which combined fixed asset data of 5,736 large listed companies from the S&P Physical Risk Financial Impact Database with climate risk indicators, shows that by 2035, annual fixed asset losses caused by climate disasters under different emission scenarios may reach $560 billion to $610 billion; by 2055, this figure will increase to $830 billion to $1.1 trillion[3]. In comparison, global foreign direct investment totaled $1.3 trillion in 2023, meaning the annual fixed asset losses caused by climate disasters are already equivalent to about half of global foreign direct investment.

: Production halts and work stoppages caused by extreme weather events directly result in revenue losses. Taking a coastal food manufacturer as an example, if floods cause 10% annual downtime at its production base, and the base’s annual output value is $100 million, flood risks will lead to an annual output value loss of $10 million[6]. In addition, the “sudden shift from drought to flood” in the Yangtze River Basin in 2024 caused a 57% drop in container turnover efficiency at Wuhan Port, and delays in multimodal transport of auto parts triggered the failure of the original equipment manufacturer’s (OEM) just-in-time (JIT) system[5].

: Since 2017, insurance premiums in the U.S. have doubled due to the sharp increase in climate disaster expenditures and federal aid[2]. For enterprises, this means continuous increases in costs such as property insurance and liability insurance; meanwhile, enterprises with higher climate risks may face pressures such as rising financing costs and reduced credit lines.

In addition to direct costs, climate change also generates indirect costs through multiple channels:

: When upstream suppliers reduce production or suspend operations due to climate disasters, enterprises have to purchase alternative raw materials from other channels at higher costs. A case of an electronics manufacturer shows that if an earthquake causes supply chain disruptions, the enterprise needs to pay an additional 20% cost to purchase components from other suppliers[6].

: As ESG regulations become stricter, enterprises need to invest significant resources in carbon emission accounting, environmental information disclosure, ESG report preparation, etc. Research results from the International Monetary Fund (IMF) show that small and medium-sized enterprises (SMEs) that passively respond to climate risks face a 4.7-fold higher risk of bankruptcy[5].

: Consumers and corporate clients with growing climate awareness are increasingly inclined to choose suppliers with good ESG performance and climate resilience. Enterprises that fail to effectively manage climate risks may face risks such as order losses and declining market share.

Based on the latest research reports and data analysis, the following key findings can be drawn:

1. Vulnerability Equals Cost
   : A CDP report shows that West Africa accounts for 80% of global cocoa production, and extreme weather in the region has pushed cocoa prices to an all-time high; drought in Taiwan caused semiconductor factories to suspend operations, and enterprises had to transport water by truck[2]. These cases indicate that the higher the geographic concentration of the supply chain, the greater the potential cost impact of climate risks.

2. Significant Regional Differences
   : The EU agricultural sector suffers losses of €28 billion annually due to extreme weather[2]. There are significant differences in climate cost exposure across different industries and regions, so enterprises need to conduct targeted analyses based on their own business characteristics.

3. Cost Accumulation Over Time
   : The financial impacts of climate risks have a cumulative effect. In the short term, direct losses caused by extreme weather events are the main source of costs; in the medium to long term, transition risks (such as rising carbon costs and technological substitution) will gradually become the dominant factor.

The Task Force on Climate-Related Financial Disclosures (TCFD) framework has become the core global standard for climate risk management. The framework requires enterprises to conduct systematic disclosures in the following four dimensions[10][11]:

: Focuses on how the board of directors and senior management oversee climate issues, including the establishment of sustainability committees and climate risk-return mechanisms. The key is “whether the decision-making level truly integrates climate issues into corporate governance”. In its 2024 ESG Report, Tencent disclosed that the company has incorporated climate-related risks into its enterprise risk management system, the board of directors regularly reviews climate-related issues, and the management is responsible for specific assessment and management work[12].

: Analyzes how climate risks and opportunities affect an enterprise’s operations, finances, and long-term strategy. Tencent conducted scenario analysis on its operating assets and businesses using climate scenarios including low-carbon and high-carbon scenarios, assessing 7 types of physical risks and 11 types of transition risks or opportunities[12]. PwC’s survey shows that 59% of Hong Kong listed companies have conducted climate scenario analysis, and 78% of large-cap sample enterprises have conducted climate scenario analysis[9].

: Explains how enterprises identify, assess, and manage climate risks, and integrate them into the overall risk management system. 70% of Hong Kong listed companies have integrated climate risk management into their overall enterprise risk management processes[9].

: Requires enterprises to disclose specific quantitative indicators and carbon reduction targets. 75% of Hong Kong listed companies have formulated and monitored the progress of climate targets[9].

Climate scenario analysis is a core tool for identifying and assessing climate risks. Enterprises should follow the following steps to conduct analysis[6][7]:

• Analyze industry and peer best practices
• Identify climate risks and opportunities under the TCFD framework
• Produce a list of climate risks and opportunities

• Select appropriate climate scenarios (such as the IPCC’s SSP-RCP scenarios, the IEA’s Stated Policies Scenario, etc.)
• Select appropriate time horizons (short-term, medium-term, long-term)
• Collect information related to assets and business development strategies
• Conduct internal interviews to understand current operating status

• Conduct qualitative assessments of the impacts of climate risks and opportunities on strategy and financial planning
• Develop quantitative models to conduct quantitative analysis of climate-related financial impacts

• Strengthen response measures for material climate risks and opportunities
• Continuously monitor and evaluate the progress of risk control based on regular reports from various business departments

The 2024 climate risk management practice of CMOC Group provides a good example: In early 2025, the company conducted a new round of physical risk assessments on 6 major mining assets located in China, Brazil, and the Democratic Republic of the Congo (DRC) based on the latest physical risk database. Using 2020 as the base year, the company calculated the medium-term and long-term physical risk levels that each mining asset may face under the high-emission scenario (SSP5-8.5) and low-emission scenario (SSP1-2.6) through scenario simulation[9].

In response to supply chain climate risks, enterprises should adopt systematic resilience-building strategies:

: Establish a diversified supplier network to reduce reliance on specific enterprises or regions, thereby diversifying risks. At the same time, conduct hierarchical management based on suppliers’ climate risk exposure and ESG performance, and prioritize establishing partnerships with suppliers with stronger climate resilience. Lenovo promotes supplier data disclosure, establishes carbon emission inventories and hierarchical management systems through its “Supplier Emission Reduction Program”, and integrates Scope 3 emissions into strategic management[2].

: In inventory management, formulate emergency reserve plans for key raw materials and components based on forecasts of the scope of impact of extreme weather disasters. Appropriate production and reserves can provide a buffer against supply chain disruptions.

: Establish effective information communication platforms with closely connected upstream and downstream enterprises, leverage supply chain collaboration advantages, share extreme weather disaster information and emergency response plans, and adjust production in a timely manner. In its 2024 ESG Report, SenseTime disclosed that the company promotes supplier data disclosure through the CDP platform to facilitate collaborative carbon reduction in the supply chain[9].

: Use digital technologies to enhance the visibility of the entire supply chain, achieving better risk prediction and faster response times. Advanced analytics, artificial intelligence (AI), and blockchain can enhance supply chain transparency and resilience.

Effective carbon emission accounting is the foundation of climate risk management. Enterprises should promote carbon emission accounting in phases:

: Greenhouse gas emissions from emission sources owned or controlled by the enterprise, such as fuel combustion in self-owned facilities.

: Indirect emissions generated from purchased electricity, heat, etc., by the enterprise.

: All indirect emissions generated from upstream and downstream of the enterprise’s value chain, including purchased goods and services, upstream transportation, employee commuting, product use phase, etc. 41% of Hong Kong listed companies have taken the lead in disclosing Scope 3 carbon emission data[9].

Since nearly 45% of net carbon emissions come from the “purchased goods and services” category, Scope 3 emission management has become a core challenge for corporate carbon management[13]. Enterprises need to communicate and collaborate with numerous suppliers and partners in the upstream and downstream industrial chains to promote carbon reduction across the entire value chain.

Internal carbon pricing is an important tool for quantifying the financial impacts of climate risks. A CDP report shows that only 19% of enterprises set internal prices for environmental externalities, among which “shadow carbon pricing” is the most common; the pricing range varies greatly among different types of enterprises, with about 50% concentrated between $9 and $124[2].

Enterprises can implement internal carbon pricing through the following methods:

• Consider carbon costs in investment decisions and raise the required return on investment for high-carbon projects
• Incorporate carbon emission indicators into departmental performance assessments to incentivize emission reduction behaviors
• Establish an internal carbon trading simulation mechanism to cultivate carbon management capabilities

Tencent has established a relatively comprehensive system for climate risk management, which is worthy of reference for the industry[12]:

: The company has incorporated climate-related risks into its enterprise risk management system; the board of directors regularly reviews climate-related issues, and the management is responsible for specific assessment and management work.

: Conducted scenario analysis on operating assets and businesses using climate scenarios including low-carbon and high-carbon scenarios, assessing 7 types of physical risks and 11 types of transition risks or opportunities; the analysis adopted datasets from the IPCC and IEA.

: Based on the results of scenario analysis, adopted appropriate measures to enhance the ability to respond to, mitigate, and adapt to climate risks, and strengthen climate resilience. In response to extreme high temperature risks, considered climate impacts in the site selection process for data centers, and used natural conditions to help cool equipment.

: Identified market opportunities for low-carbon products, provided customers with digital low-carbon transition solutions, and brought in more operating revenue.

As a globally leading mining enterprise, CMOC Group has conducted in-depth exploration in climate risk management[9]:

: In 2023, the company released the CMOC Group Carbon Neutrality Roadmap and Action Plan, using the carbon neutrality roadmap as its core strategy to promote emission reduction actions across the entire group, and strengthen operational resilience and climate response capabilities.

: In early 2025, the company conducted a new round of physical risk assessments on 6 major mining assets located in China, Brazil, and the DRC based on the latest physical risk database.

: Conducted financial quantitative analysis on major risks and opportunities to visualize the potential impacts of climate-related risks and opportunities on the company.

SF Holding is at the forefront of climate risk management in the logistics industry[9]:

: SF Express assessed physical risks, transition risks, and value chain impacts and their degrees based on different warming scenarios in the IPCC’s Sixth Assessment Report, as well as the IEA’s Stated Policies Scenario and 2050 Net Zero Emissions Scenario.

: Deeply integrated climate change risks into the enterprise risk management framework to ensure that climate-related risks are effectively identified, managed, and disclosed. Regularly conducts discussions and analyses on climate change-related issues, and supervises and follows up on the handling of climate-related risks.

: Released the industry’s first Carbon Target White Paper, committing to increasing its own carbon efficiency by 55% in 2030 compared to 2021, and reducing the carbon footprint of each express package by 70% compared to 2021.

Enterprises should complete the following basic tasks in the short term:

: Clarify the responsibilities of the board of directors and management in climate risk supervision and management, with a medium-term goal of equipping a professional team covering fields such as climate science and risk management.

: Analyze industry and peer best practices, and identify a list of climate risks and opportunities under the TCFD framework.

: Complete the inventory of Scope 1 and Scope 2 emissions, and establish a data collection and management system.

: Identify the climate risk exposure of key suppliers and logistics nodes, and prioritize the assessment of high-risk links.

Based on short-term foundations, enterprises should promote the following work:

: Select appropriate climate scenarios and time horizons, and conduct quantitative assessments of business impacts.

: Formulate specific mitigation, adaptation, and transfer measures for identified major risks.

: Incorporate carbon cost considerations into investment decisions and performance management.

: Establish a carbon data sharing mechanism with key suppliers, and formulate supply chain carbon reduction targets.

: Systematically disclose climate risk and opportunity information in accordance with regulatory requirements and the TCFD framework.

In the long term, enterprises should deeply integrate climate risk management into the core of their strategies:

: Establish a diversified, digital, and self-adaptive supply chain network.

: Formulate and implement a carbon neutrality roadmap in accordance with the requirements of the Science Based Targets initiative (SBTi).

: Develop low-carbon products and services, and explore green business model innovations.

: Promote the formation of industry climate risk management standards and best practices.

The impacts of climate change on global supply chain resilience and corporate operating costs have irreversibly become a business reality. The potential global loss of $38 trillion by 2050 and annual fixed asset losses of up to hundreds of billions of dollars by 2035 are warning enterprises that ignoring climate risks will come at a huge cost[2][3].

However, risks coexist with opportunities. A CDP report shows that for every $1 invested in climate risk mitigation by Chinese enterprises, an average return of $7 can be obtained; 71% of enterprises have identified environmental opportunities, of which 12% have converted them into actual benefits, totaling up to $158 billion[2]. This indicates that proactively addressing climate risk is not only a risk management necessity but also a value creation opportunity.

Against the backdrop of stricter ESG regulations and the advancement of carbon neutrality targets, enterprises need to elevate climate risk management from a compliance task to a core strategic issue. The TCFD framework provides an internationally recognized standard for climate risk management; enterprises should systematically build a climate risk management system in accordance with the four pillars of “Governance - Strategy - Risk Management - Metrics & Targets”.

Looking ahead, climate risk management will evolve in the following directions: from qualitative description to quantitative analysis, the financial impacts of climate risks will be more accurately quantified and disclosed; from single-point response to systematic resilience building, enterprises will pay more attention to the overall climate adaptability of supply chain networks; from reactive compliance to proactive strategy, climate risk and opportunity management will become the core of enterprise strategic decision-making