Extreme Summer heat in 2026 ushered in the UK’s worst cereal harvest in recorded history. The risks that this creates to inflation are now directly reflected in Bank of England September Monetary Policy Summary; it named “drought conditions in Europe and the potential impact of El Niño” as drivers of upside risks to UK inflation going into 2027.

Chris Houlden, Finance Director for Somerset-based plant-based drinks supplier Framptons, and who will speak at ICAEW’s Sustainability Summit (9-10 November), saw the practical ramifications of this, after its oats supply chain was hit. “UK output seems about half what it was last year,” he says. “You've got crop failures in certain regions, and then the quality of output of what has been made isn't as good as previously. And on top of that, you've got pressures on the farmers in terms of diesel and fertiliser costs. It's really a perfect storm at the moment for lots of growers.”

Bank of England’s expectations

The Bank of England Prudential Regulation Authority’s current supervisory statement on climate risk lays out its expectations of how banks and insurers should approach management of financial risks from climate change. It identifies three main characteristics that should determine the course of action by financial institutions:

• the systemic nature of the problem;
• the uncertainty in terms of its scale and timing while remaining, to some extent, unforeseeable; and
• the size and distribution of future risk, likely to be affected by the actions taken right now.

“The idea is that climate shouldn’t be entirely special anymore…It is a risk that should be managed like any other financial risks, even if it has unique characteristics in certain areas, " says Dr Caspar Siegert, Head of Climate Risk in the Bank of England’s Markets Directorate.

Siegert speaks of three essential aspects to businesses managing climate risk exposure: governance that incorporates understanding and appropriate oversight of the risk at board level; climate scenario analysis, where a company deploys hypothetical scenarios to think about the risk to their business – “not what will happen, but what could happen”; thirdly, “embedding” the climate analysis into existing risk assessment and management processes.

He insists there’s no ‘one size fits all’ approach: “It really depends on the individual firm's business models. Some institutions will be heavily exposed to transition risks that arise in the context of public policy or changes in consumer demand connected to net zero transition. Other financial firms will be materially exposed to physical risks: floods, wildfires, and so on. We do see this with respect to our own balance sheet, where physical risks are most material for some parts of our balance sheet, while other parts of our balance sheet are much more exposed to transition risk,” Siegert explains.

This is a job for the Met Office

The Met Office, first port of call for climate risk-related data and intelligence, is currently in discussions about how it can best provide climate services to industry and serve businesses in helping them interpret and use that intelligence.

“I think this is an area where the relationship we're building with ICAEW is [helpful], letting us explore how we can go beyond those traditional ways of delivering our knowledge-based services, how we can bring those to the private sector, and what we're keen to do is think about scaling,” says Professor Jason Lowe OBE, Met Office Principal Fellow and Head of Climate Services.

Inertia from businesses and institutions

One main concern is the deep reliance of businesses and financial institutions on historical data; which doesn’t adequately reflect the weather extremes we are now experiencing and especially the unprecedented climate changes coming over the next years and decades. This current urgency for a collective shift to predictive models that account for non-linear, real-time effects of climate change, becomes ever more stark

But many organisations are still learning about climate, causing a certain amount of inertia in responding to associated risks, as levels of industry confidence in available data and how to fold it into policy vary. 

Shifting from historic to real-time data modelling forces organisations to “live with deep uncertainty,” says Lowe, who is also Priestley Chair in Interdisciplinary Climate Research, at the University of Leeds, regularly engaging businesses, financial institutions and climate scientists to promote collaborative thought and practice.

Overhauling their datasets has in turn slowed progress in incorporating climate risk data into pricing, even for those companies at relatively advanced stages of adaptation. Lowe cites the examples of a bank and data provider who both employ climate scientists, and have begun to incorporate thinking about climate into their internal risk assessments, “but the pricing needs to follow”. 

“It's a lesson other sectors had to learn to deal with and there are ways of dealing with that. Think in terms of risks to the organisation and what it means for its solvency,” he suggests, to avoid being overwhelmed by its enormity.

That might relate to the insurability of buildings in designated flood plains and how that relates to movements of the company’s balance sheet or disruptions to the supply chain that might require seeking alternatives further afield.

Climate risk: take it personally

Donna Okell, is the recently appointed director for business at the National Emergency Briefing (NEB), a non-profit public information initiative focused on climate change and nature loss. To her mind, business leaders “don’t need any more data”. Rather, the gap between data and the “relevance and the emotion of what that data means” needs closing.

“What’s missing for me is, despite having five heat waves in the UK this year, despite the forecasts of the impacts of El Nino, they're not feeling it. Not just as far as risk and resilience is concerned for their business, but as people.”

Forensic psychologist Dr Emma Arakas suggests that fostering a culture of ‘cyber resilience’ requires organisations to make the issue “personally relevant” to members.   

“I think there's an inability to recognise the urgency, and a lack of understanding of the relevance of climate’s impacts on the risk and resilience of their organisation, and that's where NEB comes in.” By taking its Peoples’ Emergency Briefing documentary film and expert presentations on the road to individuals and organisations, NEB has been alerting individual hearts and business-driven minds to the urgency and non-linear realities of climate change.

But Okell warns against framing the outlook in a way that leads people to give up, but rather aim to convey urgency while motivating decisive action.

Opportunities amid the uncertainty

Lowe at the Met Office agrees with an approach linking hope and opportunities in addressing climate change. “If we plan, we can actually make ourselves resilient. But as well as that message, increasingly we talk about co-benefits - not just that we are avoiding the risk,” he says.

His take is backed by the findings of a Government Office for Science report, Economic Opportunities of Climate Adaptation in the UK, released in July.

It estimates the market for British products and services related to climate risk management could be worth as much as £355bn between now and 2035, a considerable proportion of which comes from insurance and broader financial services.

“Established domestic strengths in climate risk analytics, engineering services, finance, insurance and advisory expertise underpin this prospect,” it says. “These are competitive advantages for the UK in the adaptation market and align closely with priority areas for supporting wider economic growth set out in the UK’s Industrial Strategy.”