All posts in FMCG

Measuring and Managing Weather Variability: Protecting Businesses from WeatherRisks

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A new white paper has been released today by the researchers of Meteo Protect exploring the impact of changes in weather to find the maximum potential loss caused by adverse weather for any business. This innovative approach allows risk managers to have a full understanding about the impact of daily deviations from expected or seasonal weather and to be able to evaluate, for the first time, the total extent of their exposure to the weather.  In turn, they may determine how much of this risk should be hedged in order to secure their sales and EBITDA, and to assess the changes they need to make to their operations and business practices to mitigate risks attributed to climate change.

Given the heightened attention to the effects of climate change on all sectors of society at the recent Cop21 climate conference in Paris at the end of the year, businesses are facing increased scrutiny of their contribution to climate change by governments needing to meet emissions targets. At the same time, the effects of climate change are already impacting business profits, and investors and shareholders alike are also applying pressure, demanding climate vulnerability assessments to study the weather risks to which the business in which they have invested is exposed, and how the company is mitigating these risks.

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The winners and losers of El Niño

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As 2015 wound to a close, it was assigned to the record books as the world’s warmest year. Of course, global warming is widely considered to be at play, but meteorologists are particularly interested in the strength of this year’s El Niño, which has exacerbated droughts in some areas, increased floods in others, and led to an unusually mild winter in North America and Europe. The effects of this unusually warm winter on the world economy are representative of the diverse financial consequences of El Niño and of climate variability generally, with weather being blamed for increased production costs, reduced revenues, and reduced GDPs. The question for each of these companies is whether they were prepared for El Niño and integrated weather risk management into their development strategies.

Exploring the El Niño phenomenon

El Niño is well known as a cyclical phenomenon that occurs about once or twice per decade that sees the warm waters of the central Pacific expand eastwards towards North and South America. During the summer period, it increases the risk of decreased rainfall in the Eastern Pacific (India, Indonesia and in the northern part of Australia), and conversely, it rains more in the southern United States and on the west coast of South America. In winter, when El Niño peaks, temperatures are abnormally high in North America and Europe, and there is more intense storm activity in the Gulf of Mexico. It is also accompanied by intense rains. El Niño leads to a significant increase in the number, duration and intensity of weather anomalies around the world.

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Ranking UK retail sectors

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A new white paper has been released today by Meteo Protect demonstrating the importance of unseasonal weather on the sales performance of UK retailers, and the growing need to actively manage its financial consequences. The extent to which retail companies are exposed to climate variability is likely to be an eye-opener for many banks, regulators, analysts and investors. As climate variability is increasing, the risk to which they are exposed requires urgent action.

The research report thoroughly investigates the relationship between monthly sales and climate variability. For the first time, for each season, retail sectors are ranked according to their sensitivity to temperature, precipitation, humidity rate and wind speed.
The authors provide retail managers with a methodology to calculate the contribution of weather to sales performance and to evaluate sales at risk caused by climate variability. They also provide analysts with rankings that classify retail sectors according to their sensitivity to climate variability.

To mitigate the exposure to climate risks, the idea that geographical diversification is a natural efficient hedge is wrong, and the scientific evidence exposed in this report is unequivocal. Climate variability is a risk that needs to be managed like any other financial risk. One way to become more resilient to climate risks is to use weather-index products that are designed to pay in case of unfavorable weather. If companies are resilient to climate variability on an on-going basis, they will, by definition, become resilient to climate change.

The contribution of this research paper is of course not limited to the UK as the methodology is reproducible to other countries and sectors. A must-read for finance executives and business managers ahead of COP21.

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Heat waves and the cool risk management solutions for companies affected by them

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An ice cream parlour that closes in the throes of summer, refreshing soft drinks and beer being eschewed by customers when the mercury soars… What to make of consumer behaviour and how businesses compete and manage their risks in the summer months

Nestled in a quiet neighbourhood on the picturesque Ile St. Louis, in Paris, France, is possibly the most celebrated ice cream maker in the world, so well-known for its artisan quality and variety of ice creams and sorbets, lines routinely stretched around the block to its discrete bistro. This iconic glacier is a celebrated and essential component of the Paris experience, for aficionados and tourists alike. Yet, in the hottest month of the Paris summer, when ice-cream is undoubtedly the most in demand, and visitors are arriving in droves to the capital eager to sample this incontournable classic, Berthillon remains, in what can only be described as one the greatest snubs of capitalism, firmly, resolutely, even aggressively, shut. An ice cream parlour closed, the entire month of August. Sacrilège!

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