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Resilience in construction – physical climate risk

With a proactive approach to risk mitigation and adaptation, companies within the construction industry can build their resilience against both current and emerging climate-related risks.

The construction industry has a vital role to play in mitigating climate change and building a sustainable future. However, the sector is also particularly vulnerable to the impacts of climate change and its related risks. With a proactive approach to risk mitigation and adaptation, companies within the construction industry can build their resilience against both current and emerging climate-related risks.

Understanding the risk

CIimate change is a major global risk in the short, medium and long-term, with far-reaching direct and indirect implications for the construction industry.

The World Economic Forum’s Global Risks Report 2024, published in partnership with Marsh McLennan, places “natural disasters and extreme weather events” as the second-most severe risk over the next two years, only behind the cost of living crisis, and identifies “failure to mitigate climate change” as the top risk over the next decade. 

In relation to specific perils linked to climate change, Marsh McLennan analysis shows that the number of catastrophic floods has increased by 181% worldwide since the 1980s.

By 2030, there could be four times the amount of heatwaves, twice the amount of droughts, and extreme rainstorms could rise by 50%, according to the Intergovernmental Panel on Climate Change.

The impact on construction

Research shows that each year, adverse weather events (such as flooding and snowfall) delay 45% of construction projects worldwide, costing billions of dollars in additional expense and lost revenue. In addition, for every 1ºC rise in temperature above 28ºC, construction worker productivity can decrease by as much as 57%, according to an Air Force Institute of Technology report.

Construction companies may also face climate change-related exposures in their supply chains. Suppliers located in areas prone to climate-related hazards may experience physical damage to their facilities, transportation networks, or infrastructure. This can lead to long delays in the delivery of materials and equipment, further impacting construction projects.

In addition to impacting the availability of goods, climate change can impact the infrastructure on which supply chains rely on.  For example, in October 2023 water levels along the Mississippi dropped by as much as 11ft from those recorded a year prior after a drought struck the region, forcing barges to carry less weight in order to sit higher in the water.

With more than a trillion pounds of freight – including aluminium, coal, steel, soybeans, corn, animal feed, coke, sand and gravel, oil, fertilizer, salt and alcohol – per year travelling on the Mississippi and the rivers that feed it, this led to delays in goods arrivals and caused cost rises felt across numerous industries, including construction. 

Adapting to Climate Change and Mitigating Climate-Related Risks

Construction companies should consider risk modelling throughout the lifecycle of the project. This will not only create visibility of risks that may lead to project delays and damage during works, but also will promote builds are resilient to climate-related risk and ready for the future. Risk modelling involves analyzing historical climate data, future climate projections, and construction-specific factors to assess the potential impact of climate change on projects. Using these insights from risk modelling, construction companies can develop strategies to minimize vulnerabilities and enhance resilience.

Another crucial aspect of risk mitigation is emergency response planning. Construction companies should develop comprehensive emergency response plans that outline procedures for dealing with extreme weather events or other climate-related emergencies. This includes establishing communication protocols, evacuation plans, and contingency measures to minimize the impact of such events on construction projects and ensure the safety of workers.

To address climate change-related exposures in their supply chains, construction companies should conduct thorough risk assessments of their suppliers. This involves identifying suppliers located in high-risk areas and evaluating their resilience to climate-related hazards. Additionally, construction companies can consider obtaining supply chain insurance to protect against potential disruptions caused by climate change impacts on suppliers.

As climate change poses risks not only to physical assets but also to the workforce, construction companies should prioritize employee benefits and well-being. This includes providing training and resources to workers on climate-related risks and safety measures. One key area of employee protection is the preservation of incomes. Many in construction have explicit exposure to changing weather conditions relating to climate change. Protection of incomes when it is too hot or wet for employees to work can be a key to promoting longer-term company and project viability.

Construction companies should explore ways to contribute to community adaptation planning efforts. Initial steps include researching the impact of climate change in the area, and understanding how the community is adapting to these changes. This insight can be used to inform risk management and the company’s business continuity plan. Also, this insight can be used to find and create pathways for supporting community adaptation to climate change. By collaborating with local authorities, NGOs, and other stakeholders, construction companies can participate in initiatives aimed at enhancing community resilience to climate change. This may involve supporting infrastructure projects that improve community resilience, engaging in public-private partnerships, or participating in community education and awareness programs.

Next Steps

It is crucial for risk and resilience managers within construction companies to stay informed about the tools and evolving strategies in climate risk management. As well as making the company more resilient, this will support the long-term success of the construction sector in the face of climate change. Work collaboratively with your advisors to keep abreast of the evolving risk landscape and the best ways for your company to address them.