Super El Niño
The growing risk of a super El Niño should be seen as a warning sign and a reminder of a crucial fact: adapting businesses to climate change is now essential. From global supply chains and inflation to financial markets, the potential impacts are far-reaching.
In its June outlook, the US National Oceanic and Atmospheric Administration (NOAA) estimates the risk of a powerful El Niño event at 63%, ranking it among the most intense ever recorded. Occurring naturally every two to seven years, El Niño disrupts rainfall patterns, raises global temperatures and, depending on the region, increases the likelihood of floods, droughts and heatwaves. Climate scientists warn that, against the backdrop of an already warmer climate, its economic and societal consequences are likely to be even more severe.
Food commodities already under pressure
Already weakened by soaring energy and fertiliser prices following the closure of the Strait of Hormuz, agricultural commodities are entering this new phase in a vulnerable position. Cocoa is a case in point. Prices surged by more than 130% between 2022 and 2024, exceeding $12,000 per tonne. Although prices have since fallen back to a third of that level, Barry Callebaut, one of the world’s largest cocoa processors, believes that a new El Niño episode could again push prices up by several thousand dollars per tonne. With Côte d’Ivoire and Ghana accounting for almost 60% of global cocoa production, any climate-related disruption is rapidly transmitted throughout the value chain, affecting manufacturers and consumers alike. The same dynamic applies to palm oil production, which is concentrated in Indonesia and Malaysia. El Niño would place further strain on an already stretched supply chain, as strong demand for palm oil-based biodiesel has already driven prices higher in response to rising oil prices.
Cross-sector impact
In the energy sector, heatwaves place electricity grids under increasing pressure due to spikes in demand for air conditioning and the overheating of equipment. Renewable energy generation may also be affected, with solar photovoltaic systems becoming less efficient in extreme heat and droughts constraining hydroelectric output. Previous El Niño events have also resulted in lower copper production due to flooding in Chile and reduced aluminium output as drought affected operations in China. Copper and aluminium are both critical materials for the energy transition. Falling river levels can also disrupt global transport.
As climate-related shocks become more frequent, strengthening the resilience of businesses and their value chains is vital. The challenge is to identify vulnerabilities more effectively. The strongest companies will be those capable of anticipating these recurring disruptions and incorporating them into strategic decision-making, whether through supplier selection or the location of production facilities. Sustainability depends on successful adaptation.
Adaptation: an essential investment
Climate change adaptation investment needs are estimated at €70 billion per year across the European Union, including €10.6 billion annually in France. Current levels fall well short of these requirements. Yet, according to the Global Commission on Adaptation, the benefit-to-cost ratio of adaptation investments typically ranges from 2:1 to 10:1.[1]
Disclaimers
LFDE’s information, data and opinions are provided for information purposes only and do not constitute an offer to buy or sell a security, investment advice or financial analysis. The decision to invest should not be based solely on a fund’s non-financial approach, but should also take into account all other characteristics.
[1] Adaptation Insights – Pathways to scale investments in Nature-based Solutions for Climate Adaptation – Global Center On Adaptation