Facing Climate Risk: How to Reshape Supply Chain Strategy

Sustainability throughout supply chain operations has been on the periphery for many years, viewed as a bonus but not a necessity.

Now, with an increase in global instability and ongoing climate disasters, climate risk is something that every business leader is aware of.

Major weather incidents, like floods, droughts and forest fires have become common occurrences, instances to predict as opposed to shock-events to respond to. Caused by decades of un-optimised supply chain operations and sustainable solutions being added on rather than implemented during planning and preparation, global supply chains are finding themselves increasingly at the mercy of climate risk.

As a result, there has been a major shift in recent years to integrate thorough sustainability initiatives into every step of a supply chain, with businesses taking major steps towards reducing their Scope 1, 2 and 3 emissions. 

Now, it is no longer enough to react to climate events. Instead, businesses are working with new technologies to actively predict volatility, or making sustainable operations a standard process throughout their company to reduce their contribution to climate risks.

Levent Ergin, Chief Climate, Sustainability & AI Strategist at Informatica, and Sandra Leyva Martinez, Head of Sustainability for the Americas at CHEP are two people who are leading their companies in sustainable operations.

“AI is becoming a core capability for building resilient, climate-ready supply chains. But its value depends entirely on the data beneath it,” explains Levent.

“When organisations bring together trusted operational, supplier and climate data, AI can surface emerging risks early, anticipate disruption and recommend action before delays, cost increases or product losses occur.”

Integrating transparency in the supply chain

For organisations around the world, transparency is becoming a key feature of supply chain resilience strategies. Through the implementation of digital systems and AI, business leaders can get more visibility into their supply chains and encourage their suppliers to embed transparent and traceable operations. 

By doing this, each cog of the supply chain is being held accountable, making it easier to see where supplier changes need to be made. It also allows for the better tracking and managing of emissions, which is particularly important when working to mitigate climate risk. 

In CHEP’s operations, sustainability is integrated throughout the chain. For its pallets and containers, it is collaborating with many of its suppliers to have 100% deforestation free timber.

Further along the process, CHEP’s plants are working to ensure zero product waste, making sure that no waste goes to landfills. Moreover, it is working to engineer new ways to encourage customers to think about their waste.

Sandra explains that in CHEP’s plants, “[we’re] getting creative, innovating and, from a more forward looking perspective, we're investing in digitalisation capabilities that enhance that visibility and traceability to get these orchestration capabilities at scale.” 

One of the main benefits of using technology for supply chain transparency is being able to see the extent of a supply chain’s Scope 3 emissions – indirect greenhouse gases which arise throughout the value chain, including upstream (suppliers) and downstream (customers). Scope 3 emissions make up the majority of a company’s emissions, but are the most difficult to track and reduce.

According to the 2025 Carbon Action Report from EcoVadis and Boston Consulting Group, titled Scope 3: From Unmanaged Risk to Untapped Opportunity, despite the fact that Scope 3 emissions are, on average, 21 times larger than Scopes 1 and 2 combined, only 24% of companies report on them. 

Moreover, only 8% set reduction targets. This can be increased, however, through a move towards transparency and supplier collaboration. Through further transparency and visibility across the value chain, businesses can discover hidden truths and tackle complex issues that are proving problematic.

“This is especially critical in time and temperature-sensitive supply chains, where even minor disruption can erode margins or shorten shelf life,” adds Levent.

“AI enables faster decisions, from identifying alternative suppliers to rerouting logistics, so organisations can keep products moving despite climate volatility.”

Organisations who have full traceability throughout their chains are less likely to be affected by hidden internal shocks – by having a full insight into their suppliers’ operations, they can use AI to predict and manage risk before it becomes a problem.

Predicting and mitigating risk

Through the implementation of technology and AI, climate risk mitigation can be at the forefront of strategy. Although weather volatility feels unpredictable, there are warning signs that businesses can use to prepare themselves for these risks.

Levent points to large language models (LLMs), a set of deep learning models which are trained on data in order to understand natural language and perform a wide range of tasks. Through pattern learning, they can predict upcoming risks, including climate challenges.

“Large Language Models can extend these capabilities by analysing complex datasets such as geospatial and satellite data, helping organisations model physical climate risks like flooding, heat stress or extreme weather events,” he explains.

“Over longer time horizons, these insights support infrastructure planning, energy efficiency and long-term supply chain resilience. AI significantly improves how organisations detect, understand and respond to climate-related supply chain risk. By continually analysing supplier, logistic and environmental data, AI can identify where disruption is likely to occur and trigger preventative action in near real time.

“This increased visibility across the entire supply chain enables faster, more informed decision making.

“Whether that’s rerouting deliveries around flooded roads, switching suppliers or adjusting inventory positioning ahead of extreme weather. For example, AI can anticipate delays due to fog and suggest alternative routes before a disruption cascades through the network.” 

Rerouting deliveries ensures that customers remain happy and supply chains remain operational. Rather than facing disruption through climate events across every part of the chain, predictive AI can help limit the impact this risk has on a company. Instead of stock waiting in the warehouse, causing delays and risking over-stocking, the pre-planning and route adjustment prevents this. 

Climate risks can cause issues for every part of the supply chain. Extreme weather events can damage crops, as seen in cocoa supply chains when Ghana and the Ivory Coast were hit by increased rainfall and the spread of black pod disease in 2023. These kinds of weather challenges can prevent product moving from its sourcing country or region to its next destination by severely limiting distribution capabilities.

“Traditional risk management is asking what can happen and how likely it is to happen. Modern risk management is about understanding when things happen, how are we going to react?” Sandra comments.

“And I think that that's the beauty of orchestration and true resilience – making sure that you have pre-embedded decisions. So when you pass the thresholds, you have a network that knows how to activate, not only internally, but also within your four walls, outside your four walls.”

Though organisations can never predict these events 100% accurately, AI can be used to explore the likelihood of risk and help business leaders develop strong contingency plans to alternative solutions or routes.

Regulatory impacts

“However, AI is only as reliable as the data it is built on,” warns Levent.

“Without accurate, governed and contextualised data, AI is effectively guessing. Organisations that invest in strong data foundations, making the right data available to the right people at the right time are far better positioned to respond to climate disruption with confidence and speed.”

The embedding of sustainable practices is becoming more than just a strategic benefit, however, with its increase also being driven by new regulations. As governments around the world look to tackle climate change mitigation, adaptation and finance, they are encouraging their businesses to decarbonise their supply chains and move towards sustainable sourcing or circular economy practices.

“With supply chain sustainability, circularity is here to stay,” states Sandra. “We're seeing new regulations all over the world, including CBAM, which is still quite new in terms of implementation, and extended producer responsibility development all over the world.

“We’re also seeing that in Europe with our Packaging and Packaging Waste Regulation (PPWR) and in Latin America, where we have just seen the circular economy national plan and general law approved in Mexico. So, there are many things to come.”

More than that, however, CHEP is working to go beyond regulation requirements, instead utilising supplier visibility and data sharing capabilities to work on innovations that go above and beyond when working to mitigate climate risk. 

When looking to the future, Sandra states: “We need to start challenging our teams so from the design of the product, they're solving the source of the problem.”

Through ongoing innovations throughout manufacturing, close collaboration with suppliers and constant data monitoring, businesses can build supply chain resilience amid volatility and do their part to limit future climate risk.

“The future of climate risk management is fundamentally data-driven and increasingly embedded into core business operations,” Levent concludes. “Trusted, connected and transparent data will be as essential to managing climate risk as physical assets are to manufacturing.”

For too long, fragmented data systems have resulted in poor data tracking or limited collaboration capabilities. Now, with the opportunity for more data sharing than ever, businesses do not have to wait for events to reshape their supply chains. Instead, they can work proactively to ensure they do not have to.