The price of inaction: When the weather hits the balance sheet

Climate risk isn’t tomorrow’s bill – it’s hitting the bottom line now.

New data shows the United States alone spends more than US$1 trillion annually on climate-related clean-up. That’s the equivalent of nearly 4% of the US economy diverted to repairs instead of progress.

In New Zealand, the anxiety is real and rising. IAG’s latest Climate Change Poll confirms that more than half of New Zealanders have been directly affected by natural hazards in the past two years, and 52% now worry about their homes every time a weather watch is issued.

Over just six months last spring and summer, communities endured 14 natural hazard events – including six significant storms – major flooding in Otago and the West Coast, and a destructive tornado that caught Mangawhai residents off guard in the early hours of a January morning.

Regions such as Otago, Auckland, Canterbury and Northland have borne the brunt – Otago alone accounted for over a quarter of all natural hazard claims during that period.

Recent storms across the Top of the South reinforce what the data shows: New Zealand’s pattern of repeat, record-breaking weather events is not slowing. The risks boards once treated as distant or once-in-a-lifetime are now annual line items – testing the resilience of infrastructure, communities, insurance systems and business continuity alike.

The problem is, while we’re spending millions – even billions – cleaning up, we’re still not investing enough to prevent the damage in the first place. As the Global Center on Adaptation’s landmark analysis shows, every dollar invested in resilience can deliver at least four dollars in avoided costs and wider benefits – more recent estimates have suggested even higher benefits.

Yet we’re falling short. According to the World Resources Institute, the global adaptation finance gap continues to widen – now estimated between US$187 billion and US$359 billion annually – leaving communities and businesses increasingly exposed to escalating climate risks.

The science and the economics tell the same story: the cost of doing nothing dwarfs the cost of acting now. Beca’s regional analysis highlights a blunt reality for New Zealand boards: climate adaptation can’t be left for tomorrow. The cost of inaction is climbing steadily, while the time to strengthen resilience and avoid more severe losses is running out.

What does this mean for directors? 

First, boards need to understand that insurance alone is not a climate strategy. While strong insurance support helps communities and businesses recover, rebuilding in the same floodplains or replacing assets like-for-like increases exposure and future costs.

Boards should also recognise that as severe weather risks grow, insurance is becoming less certain – cover is more expensive, harder to secure, or may exclude high-risk locations altogether.

Second, climate damage is not a line item that can be ignored – it is a governance risk that directly affects long-term value. Climate change is a material financial risk that boards must oversee with the same rigour as any other strategic threat. Investors increasingly expect boards to demonstrate how these risks are being addressed – not just how they are reported.

Third, directors must look upstream. Where is the low-hanging fruit and practical, resilience investments that can limit tomorrow’s repair bills? The World Resources Institute reminds us that well-targeted adaptation investment is not a sunk cost – it’s a value driver, protecting supply chains, communities and business continuity.

And finally, the clean-up conversation should sharpen our sense of purpose. What legacy are we leaving behind? If we want future communities to have safe homes, insurable businesses and functioning infrastructure, we must be clear-eyed about where we build, how we rebuild and what trade-offs we accept.

If we don’t make these decisions in the boardroom, we leave them to chance, or worse, to crisis management after the fact.

Directors have a responsibility to ask tough questions:

• Is our capital investment future-fit?
• Are our assets designed for the weather extremes that are already locked in?
• Do we know where our supply chain pinch points lie when the next storm hits?

This is about good governance and long-term stewardship. The cost of inaction is rising, and the cost of adaptation is a fraction of the cost of constant recovery.

The takeaway for boards? Don’t just plan for the next clean-up – plan to need fewer clean-ups. That’s where real climate resilience begins.