By Monika Amukoto
It took only a few months for the first COVID-19 case reported in Wuhan, China, to be followed by confirmed cases in Namibia.
What initially appeared to be a distant health threat soon developed into a global health, economic and social crisis, affecting virtually every individual and organisation.
The experience demonstrated how quickly an external event can translate into widespread business risks. El Niño may be very different in nature, but it similarly requires organisations to look beyond the event itself and consider its wider implications.
When we hear “El Niño,” most of us immediately think about the weather: less rainfall, drought, extreme heat, water shortages or, in some areas, unusually heavy rainfall. But from a business perspective, the question should be:
What risks could these weather conditions create for the organisation?
El Niño can trigger risks that extend beyond the initial climate event. Drought may reduce water availability, affect agricultural output and constrain power generation, while extreme heat can increase electricity demand and strain infrastructure.
Heavy rainfall or flooding can disrupt supply chains, damage infrastructure and restrict access to key facilities.
These effects can quickly translate into business and financial pressures. Disruption to production and essential resources can increase food, energy, transport and other input costs, contributing to inflation. Businesses may face higher operating and financing costs, while reduced household purchasing power can weaken customer demand.
Financial institutions may also experience increased repayment pressures, insurance claims, liquidity challenges and portfolio losses.
What begins as a weather event can therefore translate into operational, financial, supply chain, people and strategic risks.
Translating Weather Events into Business Risk
Effective risk management requires organisations to consider not only the event, but also how it could affect the achievement of business objectives.
For example, an organisation dependent on water might identify “drought” as a risk. However, drought describes the event rather than the actual business exposure. A more useful question is:
What happens to our ability to operate if sufficient water is no longer available?
Water shortages could disrupt production, increase costs, affect employee wellbeing, reduce revenue or compromise contractual commitments. Similarly, extreme heat, flooding and reduced rainfall may translate into supply shortages, operational disruption, liquidity pressure and weaker financial performance.
This shift in thinking helps organisations move beyond the event itself and focus on its potential consequences and, importantly, how prepared they are to manage them.
With that said, how can organisations strengthen their preparedness for El Niño-related risks?
Organisations should not wait for risks to materialise before deciding how to respond. Scenario analysis can help management anticipate how different conditions could affect the business. This involves asking practical “what if” questions: What if water availability declines, operating costs rise sharply, a critical supplier cannot deliver, or inflation increases while demand falls?
These scenarios help identify vulnerabilities and help determine whether existing controls and contingency plans are sufficient. They may highlight the need to diversify suppliers, improve water and energy efficiency, strengthen business continuity arrangements, or review liquidity and funding requirements.
Effective preparedness also requires a coordinated response across the organisation. Operations, Finance, Procurement, Human Resources and Business Continuity should assess the risks within their respective areas, while Risk Management connects these perspectives to understand the overall impact on organisational objectives.
Organisational leaders should then challenge whether the organisation is genuinely prepared by asking: Where are we most exposed? What could the financial impact be? What early-warning indicators are we monitoring? Are these linked to risk appetite and escalation thresholds? And do we have the resources and contingency plans to respond quickly?
Ultimately, El Niño is more than a weather risk. Organisations must anticipate how changing conditions could affect their people, operations, suppliers, finances and strategic objectives, and equally strengthen their preparedness and resilience to manage the potential impacts.
Monika Amukoto is a Strategy, Governance, Risk and Compliance professional with expertise in helping organisations strengthen governance, manage risk and execute strategy effectively.
