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Climate Action Strategies for Utilities: Building Resilience Against Extreme Weather Challenges

This article explores strategies for resilience and adaptation to extreme weather, highlighting how utilities can enhance infrastructure, manage risks, and meet regulatory demands.

With extreme weather and climate-related events posing significant risks to utility companies, developing a robust resilience strategy is crucial for safeguarding operations and ensuring compliance with regulatory demands. Contact our experts today to explore how we can help your business navigate these challenges and build a sustainable future.

Extreme weather and climate-related events have become one of the most pressing threats to businesses globally. In the UK, extreme and unpredictable weather is now ranked among the top four risks for utility companies, according to the UK Utilities Risk Report 2025. Water companies identified it as their number one concern due to its significant and recurring impacts on infrastructure and service delivery.

At the same time, utility companies face growing pressure to decarbonise and meet net-zero targets by 2030. This dual challenge — managing acute weather impacts while transforming operations — requires a proactive, strategic, and operational response. The good news is that many investments aimed at reducing emissions — such as upgrading infrastructure, integrating smart technologies, and diversifying energy sources — also enhance resilience. By building more climate-resilient systems, companies can protect service continuity and strengthen long-term business stability and investor confidence.

For utility companies, the rising costs and unpredictability of climate risks are making long-term planning increasingly difficult. However, the cost of inaction is even more daunting. Service interruptions, regulatory non-compliance, and financial losses are fast becoming unavoidable realities.

The escalating threat of extreme weather

Climate change is intensifying extreme weather events, making them more frequent, destructive, and harder to predict. For utility companies, this means more significant risks of infrastructure damage and service interruptions.

Major risks include:

Floods and storms: These events can damage substations, water treatment plants, and overhead power lines.
Heatwaves and droughts: Such conditions put pressure on water supply and energy generation.
Wildfires: These pose threats to physical assets and employee safety.

These challenges are no longer future risks; they are current realities. For utility customers, this can result in disrupted services. For companies, emergency repairs inflate operating costs, reduce profit margins, and increase regulatory scrutiny if resilience planning falls short.

In response, many utility companies are implementing dedicated climate change strategies and increasingly recognise climate-related risks in their annual reports. For example, Marsh previously worked with a UK water utility whose climate change adaptation plan highlighted how flooding can compromise water quality, droughts can strain on supply, and extreme weather can drive up operational costs.

Rethinking infrastructure resilience in a changing climate

As most utility infrastructure — especially in energy and water — was not designed to withstand current weather extremes, ageing systems are vulnerable to floods, heatwaves, and high winds. Without proactive upgrades, the risk of widespread failure will grow.

Infrastructure challenges include:

Outdated infrastructure, as many systems were not built to withstand today’s weather extremes.
High upgrade costs, including necessary upgrades and long-term investment requirements.

Solutions involve:

Hardening infrastructure with weather-resistant materials.
Transitioning to distributed energy systems to reduce dependence on centralised grids.
Implementing innovative grid technologies that are powered by AI to monitor and respond in real time.

Here are several benefits of adapting to physical climate change for the utility sector in the UK:

Enhanced operability and reliability: Implementing climate adaptation measures can improve the resilience of utility infrastructure, ensuring consistent service delivery even during extreme weather events. This leads to fewer disruptions and can enhance customer reputation and satisfaction.
Risk reduction benefits: By proactively addressing climate-related risks, utilities can minimise the likelihood of service outages and infrastructure damage, ultimately reducing repair costs and liability associated with climate impacts.
Regulatory compliance: Adapting to climate change helps utilities meet evolving regulatory requirements for sustainability and resilience, ensuring compliance with government policies and avoiding potential fines.
Cost savings: While investing in climate adaptation may incur upfront costs, it can lead to long-term cost savings by reducing the need for emergency repairs and maintenance and potentially improving insurance programme design through enhanced risk management.
Stakeholder engagement and reputation: Demonstrating a commitment to climate adaptation can enhance a utility's reputation among stakeholders, including customers, investors, and regulators. This can build trust and potentially attract investment in sustainable initiatives, such as sustainability-linked bonds or green loans.

While the upfront investment can be significant, resilient infrastructure offers valuable secondary benefits:

Reduced operational downtime: Minimising service disruption during extreme events.
Lower long-term repair costs: Decreasing the need for emergency response costs.
Potentially favourable insurance outcomes: Hardened assets are considered less risky.

Innovative risk transfer tools, such as parametric insurance, are also transforming how utilities manage infrastructure risk. Unlike traditional policies, parametric insurance pays out automatically when a predefined event — such as rainfall exceeding 100mm in 24 hours or wind speed over 100 km/h — occurs.

Accurately valuing infrastructure based on current replacement or rebuild costs is essential for utility companies. This can help prevent over- or underinsurance, so that companies have appropriate financial protection if climate-related events cause asset damage or loss.

Strengthening supply chains to withstand climate disruptions

As extreme weather events increasingly disrupt global logistics, supply chains are emerging as a critical point of vulnerability for utilities.

Key risks include:

Flooded roads: Delaying the delivery of parts and materials.
Heatwaves: Causing shortages of essential components like transformers.
Labour shortages and safety concerns: Slowing down climate adaptation projects.

By diversifying supply sources, improving logistics planning, and identifying critical vulnerabilities, utilities can build more agile and resilient supply chains. This approach ensures they can continue delivering essential services even during and after climate events.

The regulatory challenge: Adapting to net zero and sustainability pressures

Alongside managing physical climate threats, utilities must also meet regulatory demands. The UK Climate Change Committee (CCC) has outlined a systems-based approach for the fourth Climate Change Risk Assessment (CCRA4), highlighting the interconnected nature of infrastructure, environment, and governance.

Key regulatory pressures include:

Binding net-zero targets for 2030 and 2050.
Enhanced requirements for environmental reporting and emissions reductions.
Financial and reputational penalties for non-compliance.

Many utilities are now navigating the challenge of balancing the regulatory pressures of decarbonisation with the need for adaptation. Investing in low-carbon, energy-efficient infrastructure not only meets regulatory requirements but also builds long-term resilience. Projects designed to meet net-zero targets — like distributed energy systems, smart grids, and green stormwater solutions — are future-proofing utilities against escalating climate impacts.

Strategic support for a climate-ready business

Marsh McLennan offers comprehensive support to utility companies in addressing climate risk and building long-term resilience. Our services include:

Climate risk modelling and scenario planning to assess exposure and stress-test operations.
Infrastructure resilience assessments to identify vulnerabilities and investment needs.
Insurance and risk transfer solutions, including innovative parametric insurance to manage financial risks associated with extreme weather.
Investment planning and advisory services to align resilience and decarbonisation efforts with financial performance.
Supply chain risk management strategies to ensure continuity in the face of climate disruptions.

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Utilities

16/05/2025

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Report

UK Utilities Risk Report 2025

13/03/2025