Severe Weather Threatens Businesses. It’s Time to Measure and Disclose the Risks (2017) Harvard Business Review Jean-Louis Bertrand, Miia Chabot (Parnaudeau)

Existing research has not provided managers with a clear and actionable understanding of their exposure to weather variability. One reason for this is the lack of access to reliable historical weather data necessary to model individual businesses' exposure to weather risk. This is no longer the case today. Big data and cloud computing enable the storage and management of the enormous quantities of weather data needed to assess weather risks worldwide, price them, and provide tailored hedging products through online platforms in acceptable timeframes for clients and hedging sellers.

Our research focused on how businesses can manage weather-related risks, including estimating potential losses and their probability, and using financial instruments to hedge against this risk. By relying on empirical data from the retail sectors in the UK, we developed a methodology to assess and hedge sales exposure to weather risks. In doing so, we discovered that weather conditions have a more significant impact on sales than previously estimated. Unsurprisingly, risks vary considerably from sector to sector. Finally, our estimates suggest that hedging against weather risks could help businesses avoid the very real possibility of weather-related financial distress.