With a worldwide escalation of the frequency and intensity of climate-related weather events, energy companies must begin a fundamental reassessment of how they approach this mounting risk.
The industry’s new reality involves rising assaults on physical assets from flooding, storm surges, and steadily increasing temperatures and humidity as well as event-triggered systemwide disruptions that cascade across distribution channels and global value chains.
Already, the industry is experiencing higher costs related to climate, whether from recent damage caused by severe weather events on coastal refineries, power plants, and import-export terminals or drought-related production cuts at plants reliant on nearby bodies of water. A 2024 study by Asia Investor Group on Climate Change and Morgan Stanley Capital International highlighted that electricity companies in Asia already experienced losses amounting to US$6.3 billion, with significantly higher costs expected moving forward.
By 2050, the potential costs to the energy industry from climate-related events and trends could reach US$150 billion without immediate adaptation and resilience measures. And energy is hardly the only industry reporting higher costs from climate risk: The Marsh Risk 2025 Climate Adaptation Survey found that 74% of respondents reported losses or disruptions to physical assets from extreme weather events.
Systemic underinvestment in resilience is one reason why global energy has been left exposed. To stem the tide, companies must become more proactive in dealing with what could grow into one of the industry’s biggest challenges moving forward.
Strategies that will help the energy industry push back on climate pressure
Along with Marsh, we have developed several interconnected strategies that energy companies can pursue to counter escalating climate challenges.
The first involves conducting a portfolio-wide climate risk assessment of both current and future risks to identify asset-level and system-level vulnerabilities. This would include evaluating risks within the system, both upstream and downstream, from suppliers, critical infrastructure, resource dependencies, and customers.
A second recommended step is for energy companies to translate physical exposures into financial metrics. This may include expected loss, value at risk, and recovery timelines to understand where risks concentrate and how they affect the balance sheet.
Third, energy companies should build a prioritized roadmap combining asset hardening, operational continuity measures, and supply chain mitigation measures to remove single points of failure.
Finally, energy companies should also revisit insurance and financing strategies, including multiyear placements, parametric insurance, and blended finance to secure liquidity for resilience investments. The goal is to manage the total cost of risk where it cannot be fully eliminated. Structured correctly, these investments can increase cash flow certainty, smooth loss payouts, and reduce the effective weighted average cost of capital.
Developing a holistic approach to climate risk management
To convert physical climate risks into a competitive advantage and achieve climate resiliency goals requires a holistic risk management approach that integrates comprehensive risk assessment, mitigation, and risk financing strategies. This involves the systematic analysis of how adverse climate scenarios might affect organizations up and down the value chain.
It is then important to address these vulnerabilities using climate analytics to forecast potential impacts over the next 10 years, adjusting insurance coverage to cover the gaps, and using climate-change-aware engineering as new projects and overhauls of old infrastructure are planned. Risk transfer must be an integral part of any energy roadmap.
Investors, regulators, and insurers are increasingly looking for demonstrable resilience. As markets reprice risk, energy companies that can share robust adaptation pathways and credible stress testing are likely to be awarded the competitive advantage of increased access to capital at lower rates.
