Companies need to extend climate risk assessment beyond direct suppliers, says Deloitte

Climate risk analysis still tends to stop at the factory gate, even as the most damaging shocks increasingly move through suppliers several layers removed from a company’s own operations, according to Deloitte.

The consultancy said in a 2025 survey of global executives that 33% reported natural disasters and severe weather were already affecting their business. Yet the same research found that many firms are still slow to respond with more robust sustainability and resilience...

Deloitte drew on external research from S&P Global and CDP showing that only about one-fifth of companies have a climate adaptation action plan, while roughly half assess the risk exposure of their suppliers. That leaves a significant blind spot in value chains, where heat, floods, drought and storms can trigger shortages, delays, price rises and weaker service even when a company has no direct ownership stake in the disrupted asset.

The risk is not theoretical. Deloitte pointed to the 2021 winter storm that shut down a semiconductor plant in Texas, curbing chip output and rippling through automotive and electronics production. The knock-on effects extended to downstream suppliers, distributors and retailers worldwide, with one company estimating the outage cost it $100 million in disruption.

According to the Deloitte Centre for Integrated Research report, many current assessments remain focused on a company’s own sites and immediate suppliers, but fail to capture the harder-to-model dependencies further down the chain. Those indirect links can be just as important, especially where climate shocks affect crop yields, labour productivity, transport networks or wider inflation pressures.

One way to improve visibility, Deloitte said, is to combine input-output analysis with climate risk modelling. Input-output tables show how goods and services flow between sectors, making it possible to trace not only direct purchases, such as steel bought by an carmaker, but also the upstream energy and materials needed to produce that steel. When climate damage is modelled across industries to 2030, the report said exposure looks different depending on where the indirect risks sit: retail appears more vulnerable once deeper dependencies are included, while much of manufacturing’s risk is already visible in its direct supply base.

The wider market is moving in the same direction. Supplier databases from companies such as Sprih now package hundreds of thousands of reports and ESG data points to give buyers faster visibility into supplier emissions, performance and risk signals. Other tools, including Worldly’s Axion and SupplyOn’s ESG Risk & Compliance Manager, are built to combine facility-level performance data with regional climate, regulatory and geographic indicators, helping sourcing teams identify exposure earlier. Case studies from S&P Global and climate disclosures from companies such as Levi Strauss also show that some large firms are already using more detailed assessments across operations and the supply chain.

Deloitte set out a five-part framework for companies wanting to strengthen resilience: map risk more deeply into tier-2, tier-3 and tier-4 suppliers; adjust operations through diversification, buffers and logistics planning; stress-test financial exposure; improve collaboration and board oversight; and prepare for changing regulation, labour conditions and customer demand.

Its broader message was that resilience should be treated as a strategic advantage, not merely a defensive cost. As climate hazards intensify over coming decades, the firms with the clearest view of their value chains are likely to be best placed to react early and absorb shocks before they spread.

Source: Noah Wire Services