A climate of economic, policy, and market uncertainty has prompted many companies to take a cautious approach towards climate change. Under these circumstances, it’s not surprising that Small and Medium-sized Enterprises (SMEs) are generally reluctant to put climate risk at the forefront of their priorities. Many are still trying to understand the implications of climate regulation on enterprise risks.

For example, selling low-carbon products may be tricky for SMEs without specific climate expertise. There is also increasing evidence that climate change will seriously affect the performance of most companies through its impact on society, economy, and environment in one way or another. As a result, climate risk needs to be considered in all company activities including supply and value chains.

How do companies typically respond?

Companies are mostly unaware of climate risk and unprepared to deal with it. They apply their usual business model by turning a blind eye to climate change and hope that it will go away. They fail to integrate climate risk into their strategy-making processes and its potential benefits due to a lack of understanding and/or time and resource constraints. These companies tend instead to focus on straightforward ‘business as usual’ activities such as cost reduction, service enhancement or product innovation. Many SMEs don’t even understand climate risk which is perceived as a predominantly technological challenge.

On the flipside, SMEs affect climate change more than most think. In Southeast Asia alone, they emit greenhouse gas equivalent to a country like Laos. However, many SMEs feel unable to manage climate risks because they don’t understand the implications for them or they believe that climate regulation is not part of their business model or not within their control, so why bother? For example, while some companies might want to reduce carbon intensity before abatement costs rise even further, others worry about unpredictable market conditions which could increase business risk. To date, climate change strategy has often been left to the C-suite.

What are the physical risks of climate change on companies?

To study the impacts on companies, we first need to understand the physical risks brought about by a change in climate, which should be differentiated by change in weather. Climate is a multi-year/ decade change, resulting in day-to-day weather patterns changes.

  • Physical Risks – result from climate change, which means we may face more frequent or severe weather events like flooding, droughts, and storms.

Globally, the IPCC (Intergovernmental Panel of Climate Change) released its findings in August last year. For Singapore, our climate scientists are using the global models to figure out the more precise implications on our local climate, and would only be ready in 2023. However, a quick analysis by them shows:


  • Global average surface temperature rise will cross the 1.5°C mark lies in the early 2030s or by the end of this decade. (depending on emission scenario)
  • For the period of 2081 – 2100, average surface temperatures across the world are projected to increase by at least 1.3°C – 2.4°C (low emission scenario), and by 3.3°C – 5.7°C (highest emission scenario) above the pre-industrial period 1850-1900.
  • Globally, surface temperatures have increased 1.09°C since pre-industrial times.
  • Singapore has experienced a stronger than global warming trend over the past several decades due to the additional impact from urbanization and is projected to face elevated temperatures in the coming decades.


  • Heavy precipitation events will intensify and become more frequent with each additional degree of warming. By the year 2100, global annual precipitation over land is projected to be higher than today under all the emission scenarios.
  • Regionally, South East Asia (SEA) will experience an increase in mean (monsoon) precipitation and pluvial flooding (which occurs when the ground cannot absorb rainwater effectively or drainage systems are overwhelmed during an extreme rainfall event).

Sea level

  • A global mean sea level rise of 0.32m – 0.62m (low emission scenario), 0.63m – 1.01m (highest emission scenario) by year 2100. Sea level rise is virtually certain to continue throughout the 21st century in most regions of the world.
  • Sea level change is not globally uniform, and regional and local rates of sea-level rise may differ from the global mean.

Laying out the different scenarios of climate change, we can analyze this from the perspective of a local SME. What does it mean to me if in the next 10 years, temperatures will increase by at least 0.4°C, the region experiences more heavy rainfall and flooding, and the sea level will rise?

Impact of climate projections on companies

Rising temperatures

Companies need to understand the location of their supply chains and how temperature impacts it, or whether temperature will have a higher impact on the product itself. Indirect temperature effects need to be understood, for example whether an adjacent industry has impacts that would then affect your business.

Based on the level of temperature increase that can occur over the next 10 years, companies also need to understand what temperature increase they are looking at, and adjust supply chains accordingly. For instance, temperature might rise by 0.5°C, which is significant enough that certain types of crops cannot be grown anymore – important information for food or agriculture-based companies of this knowledge. Where to continue sourcing such products?

Companies also need to monitor temperature changes through the supply chain of their products, not just temperature increases but temperature decreases too because if there are excesses in temperature swings it may result in the product being spoiled or affected. This relates to food products, sensitive electronics, petrochemical, etc.

Taken to the extreme, extreme temperature swings affect the reliability of temperature management and control, which can cause climate control systems to go haywire under certain temperature ranges. This affects especially the cold supply chain logistics, like shipping of Covid-19 vaccines.

Temperature changes also result in differences in climate which affect how businesses plan logistics routes. For instance, if there were extreme temperature swings to the point it became impossible for reliable temperature control/protection, then companies will need to rethink their supply chains.

Intense rainfall and flood

Companies are vulnerable when physical elements of their supply chains are disrupted by rainfall and flooding, which is becoming more common with climate change. Companies need to include ways to manage such risk by having early warning systems, and to ensure an effective response when faced with physical disruption. Companies also need to understand how much physical disruption there will be to their supply chains and whether they can continue operating under these new climatic conditions.

Again, there are both direct impacts i.e., product loss or spoilage due to being in contact with water (and excess water), and indirect impacts i.e., delays in transport or closures of local roads etc.

Floods affect small and large companies alike. SMEs are particularly vulnerable because their supply chains are small or narrow in scope, which means small price increases due to delays or sub-par products can impact the business.

SMEs need to strengthen resilience by having greater transparency of climate change impacts within their supply chain (and beyond), insurance, and adapting their business models (like relocating certain services like warehousing, data centers, and other logistical services further away from the waterfront).

Rising sea levels

Aside from the sea encroaching on seafront businesses, the problems for SMEs do not lie so much with rising sea levels but rather with storm surges. This problem is compounded where smaller businesses operate on small islands or coasts near the sea where small changes in sea level will have much larger effects on such SMEs.

This problem also affects small islands that are trying to expand their economies by taking on more small-scale companies, but these companies then become exposed to storm surge risk if they’re not careful about future planning.

SMEs should also monitor whether there is an increased frequency of storm surges affecting their supply chains, transport linkages, etc. because many SME owners do not even realize that such events can affect their operations. They would need to find out if there has been a change in the type or frequency of storm surge events that impact their supply chain. For example, shipping companies need to be aware of the risks associated with intense rainfall and flooding around coastal areas, and its impact on loading, unloading, workplace safety, etc.

Companies should also analyze where they are located based on their supply chain and operations, and whether regional prices would change if there is a small or large sea-level rise in that region/coastal area. Companies need to understand sea level rise is disproportionate, and it results in disparate disruptions to supply chains.

Companies also need to consider what kind of insurance products are available for them – some existing insurances take into consideration small changes in risk which accumulate over time, not just extreme events.

Concluding thoughts

I hope this article has given CEOs, company management and SME business owners a glimpse into the dangers of not considering and pricing in such disruption risk from physical changes in the climate. Although goods and services will become costlier, it becomes detrimental to companies if these are ignored.

There are of course other physical threats companies should consider post-2030, including more extreme weather conditions particularly in coastal areas, migration of diseases, along with humidity which can affect air transport etc. However, these are (as with all climate projections), difficult to ascertain due to the long time horizon of such changes.

As these become clearer and understood across the years, we are hopeful that society will be more and more tolerant and resilient to climate change, and begin their adaptation journey before it is too late.

In our next article, we will delve into transition risks and how climate regulation impacts company operations.

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Zijian Khor is Senior Assistant Director at the Ministry of Sustainability and the Environment, Singapore.

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