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Addressing Climate Change Through Improved Business Continuity

The increasing impact of climate change on the Caribbean, emphasizes the need for effective business continuity management to mitigate disruptions.

Vendedora jamaquina sonriente

 

When hurricane Beryl formed east of the Caribbean at the advent of this season, it quickly grew into the earliest-forming Category 5 hurricane on record and only the second such storm to form in July after 2005's Hurricane Emily. 

It became the second named storm, first hurricane, first major hurricane, and first of two Category 5 hurricanes of the 2024 Atlantic season (as of October 30, 2024). It went on to break many meteorological records for June and July, primarily for its formation and intensity.

Since 1980, natural disasters across Latin America and the Caribbean, including those caused by climate extremes, have affected as many as 7 million people every year on average and caused average annual economic losses of US$9.9 billion in real terms. 

The occurrence of natural disasters in the region has shown a clear upward trend in recent decades, largely explained by increased climate-related hazards – tropical cyclones, severe floods, droughts, and wildfires. 

 

Planning for Tomorrow

Climate change has become a stark reality for much of the Caribbean, where annual weather patterns will increasingly lead to the destruction of critical infrastructure and disrupt livelihoods. 

The economic impact of climate change will likely accelerate, and most crucially, for the coming generations, the extent of the damage will depend on today's policy choices.


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Financial industry stakeholders and policymakers increasingly recognize climate change's important implications on not only its industry but also for many other economic sectors.

Exposures can vary significantly from country to country; however, lower- and middle-income economies, such as those in much of the Caribbean, are typically more vulnerable than higher-income ones. 

For banks and other financial institutions, these exposures can manifest themselves through increased default risk in loan portfolios or lower asset values.

 

Continuity Management

It is for this reason that banks, other financial institutions, and companies generally must engage in effective business continuity management (BCM) to address these concerns. 

BCM is a whole-of-business approach focusing on operational risk management that includes policies, standards, and procedures for ensuring that specified operations can be maintained or recovered in a timely fashion in the event of a disruption. 

Its purpose is to minimize the operational, financial, legal, reputational, and other material consequences arising from a disruption. 

Effective BCM concentrates on the impact, as opposed to the source of the disruption, which affords stakeholders greater flexibility to address a broad range of disruptions.

 

Effective Planning

Effective business continuity planning should incorporate these main tenets:

  1. A business impact analysis to identify critical operations and services, key internal and external dependencies and appropriate resilience levels. The analysis assesses the risks and potential impact of various disruption scenarios on an organization's operations and reputation,
  2. A recovery strategy that sets out the recovery objectives and priorities based on the business impact analysis. It also establishes targets for the level of service the organization would seek to deliver in the event of a disruption and the framework for ultimately resuming business operations, and lastly,
  3. A business continuity plan has detailed guidance on implementing the recovery strategy. This plan establishes roles and allocates responsibilities for managing operational disruptions. It provides clear guidance regarding the succession of authority in the event of a disruption that disables key personnel and clearly sets out the decision-making authority as what triggers invoking the business continuity plan.

 

As expected, any risks of a major operational disruption are incorporated into BCM. It should also address the response to a major operational disruption that affects the operation of stakeholders in the relevant industry for which they are responsible. 

The recovery objectives should be developed to reflect the risks they represent to the operation of the broader ecosystem.  Where appropriate, such recovery objectives could be established in consultation with the relevant regulatory authorities. 


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Procedures for communicating within organizations and with relevant external parties in the event of a major operational disruption should also be incorporated. 

Lastly, relevant stakeholders should test and continuously review it to evaluate its effectiveness and update it as appropriate.

Authors

Stephen Thomas

Stephen leads the Financial Institutions Team for the Caribbean region at IDB Invest, which he joined in 2019. He is responsible for originating and s

Financial Institutions

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