That natural disaster led to severe shortages of components for electronics and cars, exposing the fragility of geographically concentrated supply networks.
Why it matters now
But more than a decade later, many companies still underestimate how vulnerable their supply chains are to physical climate risks.As extreme weather events become more frequent and severe, the weakest links in global supply networks are being exposed and investors should take note.
While much attention has been paid to how climate change affects companies’ direct operations, the indirect risks — especially those embedded in supply chains — are often overlooked.
Yet research suggests these risks can be even more material. For example, the European Central Bank shows that when supply chain effects are included, economic losses from climate shocks in Europe could be up to 30 times greater than from direct effects alone.
How climate risks ripple through supply chains
Several factors can amplify the vulnerability of supply chains to climate-related disruptions:
- High-risk sourcing regions. Many companies rely on suppliers in areas prone to climate extremes — from flood-prone Bangladesh to drought-hit Sub-Saharan Africa and hurricane-exposed Central America.
- Fragile infrastructure. Key transport routes are increasingly affected by climate events. For example, China’s Shanghai and Ningbo ports already lose five days a year to extreme winds — a number that’s expected to rise in the years ahead.
- Geographic concentration. Critical components, such as semiconductors and rare earth materials, are often sourced from a handful of regions. A single disruption can cascade across industries.
Which sectors are most exposed?
Industries with complex global supply chains are particularly at risk. These include:- Materials (e.g. metals, chemicals)
- Consumer staples (e.g. food and beverage producers)
- Consumer discretionary (e.g. auto manufacturers)
- Information technology (e.g. hardware and semiconductors)
- Industrials (e.g. machinery, electrical components, building products)
Yet according to S&P Global, the financial information provider, fewer than 10% of companies it surveyed identifies supply chain management as a material climate issue.
Similarly, only one-in-five has a climate adaptation plan – to identify, assess and respond to the physical risks posed by climate change – in place.
Opportunities in resilience
The flip side? Companies that actively manage these risks can gain a competitive edge. Research from Oxford Economics shows that portfolios with lower ‘indirect’ climate exposure tend to deliver higher annualised returns.For example, these are some of the supply-chain themes that we look for in corporate strategies:
- Alternative sourcing: Some forward-looking companies offer investors supply-chain diversification away from climate-vulnerable regions.
- Trade transformation: Firms that are investing to shorten, simplify or localise their supply chains. These efforts are helping to reconfigure the plumbing of international trade.
- Resource scarcity: Companies that are exposed to the raw materials needed for new technology and the energy transition, and are investing to secure access.
Don’t be afraid to ask
To assess how well companies are managing these risks, investors should request access to management teams to ask some hard questions.For example, they should ask them about:
- Awareness. Does the company recognise climate risks in its supply chain?
- Identification. Has it mapped critical suppliers and assessed their exposure?
- Diversification. Are there alternative suppliers or transport routes?
- Resilience. Has the company invested in buffers or substitutes?
- Engagement. Is it working with suppliers to improve their preparedness?
Ideally companies will have good answers to all these questions. Those that can’t answer, give poor answers, or worse, refuse to answer – then perhaps it’s time for a planned programme of further engagement seeking improvement. If there are no improvements, that’s when you consider divesting.
Final thoughts
Climate change is reshaping the global economy — and supply chains are on the front lines. As geopolitics, energy security and technological independence strain global logistics, physical climate risks will only accelerate the push for more resilient, diversified and even localised supply networks.
For investors, this presents both a challenge and an opportunity. Companies that adapt early — by reconfiguring supply chains, diversifying inputs and upgrading infrastructure— are likely to be better positioned for long-term success. Such strategies not only help mitigate climate risks but also open up compelling investment rewards.