2.2.2 Exclusive case study: Climate risk is quietly re-wiring the arteries of the global economy

Written by Mikael Allan Mikaelsson, Policy Fellow at the Stockholm Environment Institute; formerly led UK Government international science and innovation work on climate change for the Foreign, Commonwealth & Development Office.

Over the past decade, governments and corporate boardrooms have learned to talk about “supply chain resilience”. But much of the debate is still framed through the lens of geopolitics: who controls which minerals, which ports, which technologies. Far less attention is paid to something more fundamental and less negotiable than foreign policy: a rapidly energised and destabilising climate.

Drawing on two strands of work at the Stockholm Environment Institute – a forthcoming 2026 assessment of climate risks to critical minerals, and a newly published study on the role and limits of the insurance and reinsurance sector in managing climate risks to global supply chains – this article examines a major blind spot in how we think about climate risk. Together, the findings suggest that climate change is not just another risk to be priced; it is a systemic force that is reshaping where economic activity is viable, what remains insurable, and how global trade itself functions.

Critical minerals: the green transition’s weakest link

Global supply chains are the arteries of the world economy, carrying the minerals, components and data that keep industries alive. Climate risk is starting to constrict those arteries – sometimes slowly, through chronic water stress and extreme heat, and sometimes abruptly, when floods or storms knock out a critical hub.

Critical minerals such as lithium, cobalt, nickel, graphite and copper are the basic ingredients of the clean-energy transition. An electric vehicle, a wind farm, a solar park – all of them are, in effect, mineral supply chains in disguise. Demand for these materials is rising steeply, while production and processing are concentrated in a handful of countries, above all China, which dominates mid-stream processing and, for some minerals, substantial shares of extraction. 

That concentration is usually discussed as a geopolitical problem. Our forthcoming analysis, which links global climate-hazard datasets with mine- and plant-level data for six key transition minerals, shows it is also a climate-risk problem. Across the mines and processing facilities we track, a substantial share already operate in basins facing medium-high to extremely high-water stress, with widespread exposure to river flooding and more localised exposure to tropical cyclones, from lithium brine operations in arid South America to nickel and cobalt processing clusters in low-lying parts of Southeast Asia.

A sector with high-risk baselines

The picture that emerges is of a sector whose risk baseline is already high for water stress and, in many regions, for flooding, and trending sharply upwards for extreme heat. For water-intensive commodities such as copper and nickel, a significant share of future production lies in river basins where pressure on water resources is projected to increase further. For minerals such as graphite, cobalt and lithium, exposure to heatwaves is projected to rise steeply by the end of the century, with many mines operating in areas where extreme heat becomes a regular rather than an exceptional occurrence.

Crucially, mine sites are only the first link. Climate hazards also threaten refineries, smelters, ports and rail corridors that are heavily clustered in exposed coastal and riverine zones. A single cyclone hitting a nickel processing plant and nearby export port, or a drought idling lithium evaporation ponds and hydropower simultaneously, can send price shocks cascading through battery, automotive and power-equipment markets thousands of kilometres away. In a world where each clean-energy technology depends on a suite of minerals, risk to one mineral quickly becomes risk to an entire technology platform.

Can systemic climate shocks be insured?

For decades, insurance and reinsurance have acted as the financial shock absorbers of the global economy, pooling and redistributing losses from floods, storms and other disasters. A newly published report asks how far that model can stretch in a world of compounding climate shocks and tightly coupled supply chains.

Interviews with senior climate-risk specialists across the global (re)insurance ecosystem reveal a sector that is technically sophisticated but increasingly constrained by the nature of today’s risks. Insured catastrophe losses have been rising in real terms, driven not just by more intense hazards but by the sheer quantity of assets now located in high-risk regions. As climate extremes hit multiple regions and sectors at once, the core principle that makes insurance work, diversification of independent risks, starts to break down.

Three ways climate shocks matter for supply chains

First, coverage is narrowing just as risks are broadening. Traditional policies focus on direct physical damage, yet many climate impacts are indirect: a flooded supplier, a closed port that strands components, a heatwave that cuts labour productivity. Specialist products such as Contingent Business Interruption and parametric covers can plug gaps, but they remain niche, complex, costly in many markets, and come with restrictive terms that leave systemic losses uninsured.

Second, insurers share the same visibility problem as their clients. Reinsurance experts stressed that most firms cannot see beyond their Tier-1 suppliers, and that supply-chain mapping tools are rarely linked to forward-looking climate hazard data. Systemic vulnerabilities – such as exposed refineries or ports serving entire industries – are discovered only after a failure.

Third, insurance is short-term by design. Annual underwriting cycles, pressure to keep premiums low and regulatory capital rules favour risk avoidance and withdrawal from high-risk areas over investment in resilience. As cover becomes unaffordable or unavailable, protection gaps widen and risk shifts onto public budgets, workers and small firms. In the worst case, insurance can amplify shocks instead of smoothing them, through abrupt repricing and withdrawal as climate risks peak.

From risk transfer to shared resilience

The message is uncomfortable but clarifying: we cannot insure our way out of systemic climate risk, and we cannot decarbonise on the back of brittle, hazard-blind mineral supply chains.

For policymakers, this means treating climate adaptation in producer regions as a core element of economic and security policy, not an optional development add-on. Investing in resilient infrastructure, water management and early-warning systems in key mining and logistics hubs is every bit as strategic as securing new offtake agreements.

For businesses, it means moving beyond glossy “resilience” rhetoric to the hard work of mapping multi-tier supplier networks, stress-testing them against realistic climate scenarios and redesigning procurement, inventory and logistics accordingly. That includes recognising labour as a critical risk node: a supply chain built on overheated, uninsured workers is not resilient by any meaningful definition.

For insurers and reinsurers, the challenge is to pivot from being passive payers of claims to active partners in adaptation – using pricing, data and product design to reward genuine risk reduction, while working with regulators to enable longer-term contracts and public–private risk-sharing mechanisms. Insurance cannot carry systemic risk alone, but it can help steer capital and behaviour toward resilience rather than ever-larger losses.

Systemic climate risk is already here. The question now is whether we treat it as a series of regrettable surprises – drought here, flood there, or as a structural signal to redesign how we source, insure and govern the supply chains that underpin our economies. Our research on critical minerals and the (re)insurance sector aim to inform that shift. The stakes are not only the pace of the green transition, but the stability of the economic system that must deliver it.