Climate Risk: The Next Frontier in Treasury Strategy

Climate Risk: The Next Frontier in Treasury Strategy

Based on the Treasury Masterminds Podcast with Marcus Cree, FIS

Corporate treasurers have spent the past decade wrestling with geopolitical shocks, broken supply chains, inflation, and volatile FX markets. Just when you thought the to-do list couldn’t get any longer, here comes the next heavyweight risk class marching straight into treasury: climate risk.

Most treasurers still place climate somewhere between “new ESG reporting templates” and “update DE&I statement” on the priority chain. Nice to have. Someone else’s problem. A topic for sustainability teams who love PowerPoints a bit too much. But climate is no longer a PR conversation. It’s a financial one. And the numbers are already hitting the P&L.hjj

This podcast episode with Marcus Cree, risk management specialist at FIS, pretty much hammered that home.

If you missed the Podcast, you can listen to it below:

Why Climate Risk Is Suddenly a Treasury Problem

Marcus cuts through the noise: climate change isn’t about melting ice caps, it’s about probability shifts. A higher likelihood of loss events affects pricing, insurance, credit spreads, and—yes—cash flow. Treasurers are already feeling it through:

  • Rising insurance premiums
  • Counterparty credit deterioration
  • More supply-chain interruptions
  • Higher volatility in long-term financing assumptions

Climate risk doesn’t sit next to market, credit, and liquidity risk. It sits inside each of them.

Just as the Basel Committee has laid out for banks: Climate isn’t a new silo. It’s a new dimension.

From Hurricanes to Cash Flow: Turning Events into Financial Exposure

The examples Marcus shared weren’t abstract. Germany’s river flooding knocked out a door manufacturer. A global car company took a share price hit. Wildfires and hurricanes across the US disrupted entire industries. Ports shut down for days create ripple effects that last months. And yes, sometimes one ship sideways in Suez is enough to wreck liquidity cycles everywhere.

Climate events disrupt supply chains. Disrupted supply chains disrupt payment cycles. Disrupted payment cycles disrupt liquidity. Treasury is the last stop on that chain. Unfortunately. But VAR Models Only Look a Few Days Ahead… Right?

Classic treasury VAR models look at maybe 1–10 days. Climate projections look at 25, 50, and even 100 years. So how do they meet?

Simple: Treasury instruments’ price today based on long-dated expectations.

Forward curves are built on assumptions about many future quarters. If climate risk changes those assumptions—higher volatility, higher credit risk, higher break probabilities—then the price today shifts too.

Banks are already factoring in those forward risks. Higher expected flooding in 2040 → higher credit spread now. If banks are doing it, treasurers need to understand it. What Happens If You Ignore It?

Marcus is brutally honest: This isn’t about reputational risk. Nobody is cancelling a company because they dislike your climate disclosures. But the financial consequences?

  • Underpriced debt
  • Unexpected insurance withdrawals
  • Stranded assets
  • Higher refinancing costs
  • Counterparties who become uninsurable

Supply chain fragilities that won’t show up in any traditional model. Climate ignorance becomes financial mismanagement. Treasurers don’t have to become climate scientists. But you can’t price risk you refuse to see.

So, Where Should Treasurers Start?

Marcus gives a surprisingly reasonable entry point:

  1. Read the Basel Committee’s 12-Principle Climate Framework: Non-technical. Actually readable. A miracle in itself.
  2. Engage with your bank: They’re already modelling climate impacts into credit.
  3. Talk to your insurance team: Premium jumps are the canary in the coal mine.
  4. Sit down with supply chain and facilities: They know where vulnerabilities truly sit.
  5. Integrate climate factors into cash forecasting and scenario planning. Start small. But start.

Treasury doesn’t own climate risk. But treasury owns the financial impact of climate risk. Big difference.

Treasury’s Long-Term Blind Spot

Most teams live in a 13-week cycle. Cash, liquidity, FX, debt—everything is short-term execution. The problem is: the world that shapes those short-term numbers has already changed.

Banks are modelling:

  1. 2°C vs 4°C vs 6°C warming paths
  2. Flood-zone deterioration
  3. Uninsurable regions
  4. Worker heat-stress impacts
  5. Transportation corridor instability

Treasury teams can’t stay in their bubble anymore. If you don’t understand the business and supply chain, you can’t understand the risk. Climate impact is no longer fifty years away. It’s sitting quietly inside your financing costs today.

A New Role for Treasury

This shift is uncomfortable, but also a massive opportunity. Treasurers who embrace climate-adjusted forecasting, scenario planning, and credit analysis will:

  • Strengthen strategic influence
  • Improve partnership with procurement and supply chain
  • Prepare for future regulations without panic
  • Become advisors instead of firefighters

It’s not ESG. It’s financial survival.

Final Thought

Climate risk might feel overwhelming and abstract. But Marcus brought it back to something treasurers do understand: Every risk can be priced. The real question:

Are you the one doing the pricing—or is someone else doing it for you?

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