Risk Ready Podcast: Navigating Climate and Sustainability Risks in the Australian Food & Beverage Sector

The Evolving Risk Landscape

Aon highlighted that in 2024, global natural disaster losses reached $368 billion, but only $145 billion of that was insured—leaving 60% of losses uninsured and exposing a significant protection gap. Within the food, agribusiness, and beverage (FAB) sector, Aon’s biannual global survey The Global Risk Management Survey (GRMS) identified the top risks as commodity risk/scarcity, supply chain disruption, business interruption, climate, and natural disasters. Notably, five of the top ten risks for the sector have a direct link to climate change.

“30% of FAB sector respondents indicated that risks in the top ten contributed to a loss for their organisation in the last 12 months, while 62% have developed plans to address these risks. However, only 13% have formally quantified the impact of climate risk on their business.”

Climate Change and Regulation

Climate change is driving increased economic loss and volatility across the FAB value chain. Climate events could be impacting production quality, volume, and yield, leading to significant cost implications. This is compounded by growing regulatory and stakeholder pressure for responsible sustainability practices and more complex disclosure requirements.

Aon discussed the impact of evolving regulations, such as the European Union Deforestation Regulation (EUDR), which requires companies selling goods into the EU to have robust oversight of their supply chains to prevent deforestation. This regulation has implications for Australian exporters and underscores the need for transparency and supply chain management.

The Benefits of Going Green

Aon outlined five key benefits for businesses proactively embracing sustainability:

1. Lower insurance premiums: Sustainable practices can reduce exposure to climate-related losses.
2. Improved yield stability: Climate-smart agriculture and diversification protect against climate shocks.
3. Access to markets and financing: Strong ESG performance opens doors to sustainable loans and premium market opportunities.
4. Reduced input costs: Practices like crop rotation and organic fertiliser use lower reliance on costly synthetic inputs.
5. Enhanced brand value and customer loyalty: Investment in ESG credentials boosts reputation and customer retention.

Labour and Automation Challenges

The sector continues to face labour shortages, a trend intensified by the COVID-19 pandemic. Businesses have responded by investing in automation and autonomous vehicles, particularly in agriculture and food processing. However, this shift brings new insurance challenges, including liability and cyber risks associated with automated equipment.

Innovative Risk Solutions

Aon emphasised the importance of leveraging data, technology, and innovative risk transfer solutions. Aon has developed tools such as the Climate Risk Analyzer and the Combined Hazard Identification Platform (CHIP) to help clients model and understand their exposures.

Aon shared real-world examples:

• Climate modelling for site selection: A client in Ireland used climate data to relocate a potato processing factory, anticipating shifts in crop viability over the next 30 years.
• Parametric insurance solutions: An Australian client used a parametric solution as a hedge against drought, allowing them to buy ingredients on the spot market if local supply failed.

The Role of Good Risk Management

Aon risk ready tip for businesses:
“Be inquisitive about both your insurance programme and the broader challenges your business faces. Challenge traditional thinking on risk and explore the growing range of tools and solutions available to close the protection gap.”

Conclusion

The Australian food and beverage sector is navigating an increasingly complex risk environment shaped by climate change, regulatory shifts, and market pressures. As Aon discusses, success will depend on proactive risk management, strategic use of data and technology, and a willingness to innovate in both operations and insurance solutions.

For more insights, listen to the full Risk Ready Podcast episode or contact Aon’s Food and Beverage Practice Group.

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Thank you for tuning in to “Risk Ready.” We hope today’s episode provided valuable insights into managing risks and understanding the insurance solutions available to your industry. Remember, being risk-ready is key to sustaining and growing your business. Stay connected with us for more expert advice and discussions on the challenges and opportunities facing businesses today.