5 Strategies for Addressing Climate Variability and Extreme Weather

Weather has always been an important operating consideration for the travel, leisure, and hospitality sectors. Recent periods of extreme heat, drought, wildfire, flooding, severe storms, and variable snowfall,^[1] however, highlight the increasing potential for sustained variable conditions to affect not only day-to-day operations, but also long-term financial performance, infrastructure, insurance, capital allocation, and enterprise valuations.

These impacts also extend to the infrastructure ecosystem that supports these sectors, which are exposed to many of the same physical conditions and, in some cases, can transmit the effects of a disruption across a broader network of businesses. As a result, management and boards in a wide range of industries are beginning to face immediate need to oversee and adjust risk management to these realities.

The potential economic consequences are significant. Bloomberg Intelligence estimates that costs associated with extreme-weather events totaled approximately $1.4 trillion in 2025, equivalent to approximately 1.2 percent of global GDP.^[2] In the United States alone, there were reportedly 23 weather events during 2025 that each resulted in at least $1 billion of damage.^[3] Insurance costs provide another measure of the changing economics: according to Bloomberg Intelligence, insurance premiums have increased seven percentage points faster than inflation since 2017 as extreme-weather events have become more costly.^[4]

These developments also present potential investment opportunities. Bloomberg Intelligence estimates that extreme weather could drive more than $20 trillion in global spending over the next decade, with potential benefits for businesses involved in areas including insurance and reinsurance, energy efficiency, infrastructure, and climate security.^[5] A group of 275 companies identified as focused on environmental adaptation and mitigation reportedly outperformed the broader market by nearly 32 percentage points from January 1 through April 19, 2026.^[6]

These figures illustrate a broader trend for boards, management teams, and investors. Companies cannot eliminate weather-related risk, and the relevance of particular meteorological conditions will vary significantly by business and geography. But companies may nevertheless need to more regularly evaluate whether their governance, risk management and business planning, investment, and disclosure processes appropriately reflect the potential effects of weather variability.

The Evolving Regulatory Framework

The governance, investment, and disclosure strategies discussed below sit within a rapidly evolving and increasingly fragmented regulatory landscape. At the federal level, the U.S. Securities and Exchange Commission’s (SEC) 2024 climate-related disclosure rules were stayed pending litigation, and on May 29, 2026, the SEC proposed rescinding them in their entirety, citing concerns that the rules exceeded the agency’s statutory authority and were inconsistent with a materiality-focused approach to securities regulation. At the state level, California’s climate-disclosure package, SB 253 (greenhouse gas emissions reporting) and SB 261 (climate-related financial risk reports), is slated for imminent effect (although only partially, for now): SB 253 requires initial Scope 1 and 2 emissions reports by November 10, 2026, while the Ninth Circuit enjoined enforcement of SB 261 in November 2025, with the appeal still pending. In Europe, the Corporate Sustainability Reporting Directive (CSRD) continues to apply a “double materiality” standard to in-scope companies, although the European Union’s Omnibus revisions have significantly narrowed the pool of companies subject to CSRD and pushed Corporate Sustainability Due Diligence Directive (CSDDD) compliance deadlines to 2029. Meanwhile, voluntary frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) recommendations — and the International Sustainability Standards Board (ISSB) standards that succeeded them — remain widely used and together serve as the practical baseline for the climate-risk governance and reporting discussed in this article, even as mandatory regimes remain in flux. This fragmentation means that companies, particularly those with multi-jurisdictional operations, must navigate overlapping, sometimes conflicting, reporting frameworks. This reality informs each of the strategies below.

Against this backdrop, the following five areas, and related legal and governance considerations, may warrant particular attention.

1. Elevate Weather Risk from Operations to the C-Suite and Boardroom

Companies in travel, leisure, and hospitality have long incorporated weather into operational planning. Hotels prepare for hurricanes and severe storms, resort operators plan around seasonal conditions, airlines and airports manage weather-related disruptions, and entertainment and destination businesses account for temperature and precipitation in staffing and operating decisions.

As the figures above highlight, the financial effects of these events are becoming more significant. Boards should therefore consider whether weather-related risks should receive more structured, regular attention as part of enterprise risk oversight. Physical disruptions can extend beyond the location in which an event occurs. For example, enterprise risk assessments should consider not only the physical resilience of a company’s own assets and direct impacts, but also its dependence on the infrastructure supporting the company’s business. Research examining the U.S. domestic aviation network has found that extreme-weather disruptions can propagate through interconnected airport networks, contributing to delays and cancellations elsewhere in the system.^[7] Similar interdependencies exist throughout the travel and leisure sectors. Destination operators depend on visitors being able to reach them and the infrastructure supporting their travel remaining operational. Depending on the business, relevant considerations may include geographic concentration, water and energy availability, transportation access, insurance availability and cost, supply chains, workforce exposure, and the potential for disruption at one location to affect other parts of the enterprise.

The appropriate scope and frequency of board oversight will vary by company. The objective should not be to forecast particular weather events, but to understand how different physical conditions could affect the company’s operations, financial performance, and strategic planning.

Legal and Governance Considerations

• Formalize board oversight. Review board and committee charters, enterprise risk management processes, and reporting protocols to determine where responsibility for material weather-related risks resides. There should be an appropriate cadence for reporting those risks to the board. While much of this governance structuring and reporting of oversight of physical-related weather risks has been the subject of voluntary reporting frameworks, like the TCFD and emerging mandatory reporting frameworks, like California’s SB 261 reporting law^[8] (and the now effectively defunct^[9] SEC climate rule) and the European Union’s CSRD,^[10] the increasingly apparent nature of the physical impacts of extreme weather are becoming much harder for companies to place on the backburner as these risks are beginning to have demonstrable impacts on certain companies’ current and nearer-term financial condition.

• Review material contracts and dependencies. Identify material agreements and third-party dependencies that may be particularly exposed to extreme weather, including leases, concessions, water and power arrangements, transportation agreements, insurance policies, and key supplier contracts and review force majeure, business interruption, termination, and risk-allocation provisions.

• Assess environmental permitting and regulatory dependencies. Identify material assets and infrastructure that operate under federal or state environmental permits (e.g., Clean Water Act Section 404 and National Pollutant Discharge Elimination System permits, air quality permits, coastal zone management authorizations, and federal approvals subject to the National Environmental Policy Act (NEPA)), and evaluate how changing physical conditions, including sea-level rise, increased stormwater runoff, altered wetland boundaries, and shifting floodplain designations, could affect current permit terms or the ability to obtain new authorizations for weather resilience investments.

• Document board oversight. Ensure board and committee materials and minutes appropriately reflect consideration of material weather risks, significant weather-related dependencies, and management’s plans to mitigate or respond to them, particularly where those risks could materially affect strategy, operations, or financial performance.

2. Make Performance Metrics Fit the Reality

Weather variability can also complicate the measurement of financial and management performance. A resort operator may execute effectively during a season characterized by unfavorable weather. Hotel occupancy may be affected by hurricanes, wildfires, or extreme temperatures. Airlines may experience network-wide consequences from severe weather affecting only a limited number of airports.

At the same time, management’s ability to anticipate, prepare for, and respond to these conditions can itself affect financial and operational performance. Companies should therefore consider whether existing incentive structures appropriately balance annual financial results with longer-term value creation and operational resilience. Depending on the company, traditional financial or performance measures could be considered alongside other measures focused on strategic objectives intended to address weather-related impacts, such as revenue diversification, operational resiliency, customer retention, capital stewardship, and infrastructure reliability.

The analysis may be particularly relevant where weather conditions can have effects across multiple reporting periods. Drought or reduced snowfall can affect future water availability and wildfire risk across seasons. Wildfire or hurricane exposure can affect insurance availability and pricing beyond the period in which an event occurs. Repeated periods of extreme heat may influence infrastructure requirements, capital expenditures, and customer behavior.

These factors do not necessarily require changes to compensation programs. They may, however, warrant consideration as boards assess whether existing performance measures remain aligned with the company’s strategy, operating environment, and long-term objectives.

Legal and Governance Considerations

• Consider incentive-plan metrics. Review annual and long-term incentive plans to determine whether performance measures should capture weather resilience and value-creation strategies.

• Address weather-related adjustments in advance. Consider establishing principles for how boards will evaluate extraordinary weather events and related financial impacts before they occur, rather than relying on discretionary adjustments after events and any resulting performance effects are known. Any such approach should be designed to avoid the perception that weather-related adjustments are discretionary windfalls. ESG-linked compensation metrics have drawn scrutiny in recent years for being difficult to measure and susceptible to manipulation, and boards should be prepared to explain the rigor and objectivity of their framework.^[11]

• Align compensation disclosure with decision-making. For public companies, consider whether proxy disclosure appropriately explains how the boards evaluate weather-related volatility, resilience investments, and other strategic considerations where they materially affect compensation decisions or performance assessments.

3. Know What Your Assets Are Worth Before Someone Else Decides for You

Changing physical conditions may also affect how companies evaluate existing portfolios, acquisitions, and major capital investments. For public companies, that analysis has an additional dimension: shareholder activism.

M&A has returned as a significant focus of activist campaigns. In the fourth quarter of 2025, 61 percent of global activist campaigns included an M&A emphasis, the highest proportion in five years. Activists increasingly are calling on companies to simplify portfolios, divest underperforming assets, or pursue other transactions intended to address perceived valuation gaps.

These trends may be particularly relevant for resort and other destination-based businesses. Operators that have pursued scale through acquisitions or geographic expansion may face especially increased scrutiny when individual destinations underperform for prolonged periods, particularly if these companies have grown accustomed to focusing less on destination-level financial performance as opposed to broader measures of scale, network growth, or aggregate visitation. Weather variability may sharpen that scrutiny by widening the performance gap between more and less weather-resilient assets.

Boards may benefit from periodically evaluating destination-level performance together with the capital required to improve weather resilience and realistic alternatives available to each destination. Relevant considerations may include water and energy availability, insurance, transportation access, infrastructure requirements, real estate, permitting, and the ability to generate revenue across warm- and cold-weather seasons. The appropriate response may be additional investment or repositioning. In other cases, a sale, joint venture, or other strategic alternative may warrant serious consideration.

For boards, the relevant question is not necessarily whether a weather-sensitive asset should be retained or sold. It may be whether the asset is structurally underperforming or capable of generating an appropriate return with additional investment or repositioning, which is an analysis better undertaken before activists raise the question.

Conducting that analysis proactively can also be an important component of activism preparedness. A board that has already evaluated asset performance, physical risks, required capital investment, and strategic alternatives will generally be better positioned to assess and respond to an activist proposal seeking divestiture.

The same considerations apply to M&A. Buyers, sellers, and capital providers may increasingly incorporate weather resilience, anticipated capital expenditures, insurance costs, and infrastructure dependencies into valuation and transaction structuring. As Vinson & Elkins partner Michael Burns recently observed, assets that are not adequately adapted to extreme weather may face increased operating and insurance costs and, in some circumstances, potentially stranded value.^[12] Assets in flood zones, wildfire-urban interface areas, drought-prone regions, or areas with eroding coastlines may face declining insurability, regulatory restrictions on and public opposition to rebuilding, and floodplain remapping that restricts development, all of which can contribute to stranding. The National Flood Insurance Program and Federal Emergency Management Agency (FEMA) flood-zone designations directly affect the insurability and financing of resort and hospitality properties in special flood hazard areas, where federally backed lenders require flood insurance.

Legal and Governance Considerations

• Conduct regular destination and asset-level reviews. Establish a board-level process for reviewing destination and other weather-sensitive assets individually, including their financial performance, required weather resilience capital, dependencies, and strategic alternatives, not simply their contribution to enterprise-wide scale or aggregate visitation numbers.

• Incorporate the analysis into activism preparedness. For public companies, maintain a current record of the board’s rationale for retaining, investing in, repositioning, or divesting underperforming assets. Companies that have pursued scale through acquisitions should be particularly prepared to explain the strategic and financial rationale for retaining destinations whose individual performance may attract activist scrutiny.

• Build resilience into M&A diligence and documentation. Expand acquisition and disposition diligence, where appropriate, to address water and energy access, insurance, permitting, local regulatory restrictions on and public opposition to rebuilding, infrastructure, floodplain and weather exposures and anticipated adaptation capital expenditures, and consider whether identified risks should affect valuation, financing, representations, covenants, special indemnities, or other transaction terms.

4. Don’t Just Weather the Storm, Invest Through It

Investment in weather resilience has tended to focus on protecting existing assets and operations. That can include property hardening, flood protection, backup power, additional cooling capacity, avalanche mitigation, water storage, and insurance. Those investments remain important, but companies may also consider whether resilience-related capital expenditures can provide additional operational flexibility or support new sources of revenue.

For destination resorts, investments in four-season activities and hospitality offerings may reduce reliance on a particular season while expanding potential sources of demand. Hotels and outdoor recreation businesses may consider additional investments in cooling, water efficiency, environmental hazard prediction and controls (like early avalanche risk detection and control, early fire detection, tidal irregularity detection), indoor experiences, or technology that allow facilities to operate effectively under a wider range of conditions.

Infrastructure providers face similar considerations. Investments in distributed energy, backup generation, water infrastructure, cooling systems, and transportation capacity can improve reliability while potentially supporting additional development and demand.

The scale of the anticipated investment is noteworthy. The expected $20 trillion of global spending over the coming decade in weather resilience will likely extend across a broad range of sectors, including insurance and reinsurance, energy efficiency, cooling, water, infrastructure, and technologies intended to protect or improve the performance of physical assets. Other research similarly points to a substantial market for weather adaptation. Systemiq has estimated that the global weather adaptation and resilience market could reach between $500 billion and $1.3 trillion annually by 2030.^[13]

For companies and investors, these projections suggest that weather resilience may be relevant not only to protecting existing enterprise value, but also to identifying potential areas for investment and growth. The distinction may be particularly important for the infrastructure supporting travel and leisure. Increased demand for cooling, reliable electricity, water infrastructure, transportation redundancy, and physical protection can create significant capital requirements, but also potential investment opportunities for companies providing those services and technologies.

Technology may further expand those opportunities. AI, digital twins, and other modeling tools are increasingly being used to monitor physical infrastructure, evaluate wildfire, tidal conditions, and weather exposure, and model how assets and interconnected systems could perform under different conditions.

Accordingly, companies evaluating weather resilience investments may consider both the risk reduction associated with a proposed expenditure and whether the investment provides additional operating flexibility, supports new revenue opportunities, or otherwise contributes to more sustained long-term value creation.

Legal and Governance Considerations

• Develop a framework for weather-resilient capital. Establish criteria for evaluating significant weather resilience expenditures alongside other capital-allocation alternatives, including expected returns, risk reduction, asset-life extension, potential new revenue, and the effect on long-term enterprise value. As discussed above, voluntary frameworks like the TCFD, while certainly having drawbacks, seek to provide investors with this type of information. Other mandatory reporting frameworks like the CSRD and California’s climate laws also seek to compel reporting of this type of information for companies subject to their jurisdiction.

• Evaluate permitting, regulatory and contractual requirements early. Investments involving water, energy, transportation, land use, cooling, environmental controls, or new destination activities may implicate environmental permitting and consultations (particularly under potentially long lead-time regulatory frameworks such as NEPA, the Clean Water Act, the Endangered Species Act, and state water laws), concession arrangements, and other regulatory requirements that should be incorporated into project planning and investment decisions.

• Consider strategic investment and partnership structures. Evaluate whether joint ventures, infrastructure partnerships, project financing, or other arrangements can provide opportunities to share investment risk and develop more resilient infrastructure or technology while appropriately allocating development costs, operating costs, and physical risks among the relevant parties.

5. Changing Conditions, Changing Disclosures

Weather-related disruptions require consideration not only in internal planning, but also in a company’s external disclosures. Although the SEC’s rule regarding climate-related disclosure has been proposed for full rescission,^[14] that does not obviate the potential need for companies to address in their disclosures the effects of particular climate or weather conditions that are material to them.

Accordingly, public companies must continue to consider whether information concerning variable weather conditions that is material to their business is appropriately reflected in risk factors, MD&A, financial statements, descriptions of business, and other areas. While the specific analysis necessarily depends on the circumstances of the particular company and the nature of the relevant event or risk, companies across a broad swath of industries face potential disclosure considerations.

Consistency between internal planning and external disclosure also warrants attention. For example, if management is modifying forecasts, capital allocation decisions, insurance strategies, asset-development plans, or other significant business priorities in response to weather-related conditions or risks, the company should consider whether those developments have attendant disclosure implications.

The analysis may become particularly relevant when weather conditions previously viewed as isolated begin to recur. A single storm, heat wave, wildfire, or poor operating season may be thought to have limited long-term significance. If such events repeat, however, they may affect prior assumptions regarding operations, costs, revenues, or capital requirements in ways that could factor more prominently in subsequent disclosures.

This does not mean that every weather-related event requires additional disclosure. Materiality remains a bedrock and company- and event-specific determinations will continue to require the need for significant judgment. Companies should ensure their disclosure controls allow them to evaluate developments and consider their implications for public disclosure.

Legal and Governance Considerations

• Review disclosure through the existing materiality framework. Periodically assess whether recurring or increasingly significant weather conditions should be more fully addressed in risk factors, MD&A, business descriptions, or other disclosures. Companies operating in multiple jurisdictions should also track applicable voluntary frameworks such as TCFD and mandatory or emerging requirements such as California’s SB 261 and the European CSRD.

• Test internal assumptions against external disclosure. Evaluate public disclosures against board materials, budgets, forecasts, insurance analyses, capital plans, and asset-level performance assessments to identify potentially material differences between how the company is planning internally and how it is describing its risks and outlook externally. Companies that already prepare voluntary TCFD disclosures, or that are subject to California’s SB 261 (currently enjoined but subject to ongoing litigation), should ensure alignment between internal risk assessments and external disclosures.

• Ensure disclosure controls are sufficient to capture emerging weather risks. Ensure disclosure committees and relevant personnel have processes for elevating material information concerning weather-related events and risks so that those developments can be evaluated appropriately with a lens toward potential disclosure.

Weather Resilience as a Business Strategy

Weather variability is not new to the travel, leisure, and hospitality sectors or the infrastructure that supports them. What appears to be changing is the frequency and financial significance of extreme weather events and the potential long-term impacts they present to these companies. For boards, management teams, and investors, climate resilience extends beyond operational preparedness to questions of governance, capital allocation, portfolio strategy, M&A, activist defense, and disclosure. Companies that incorporate these considerations into long-term planning should be better positioned not only to manage weather-related risks, but also to identify investment opportunities and preserve and create value as operating conditions continue to evolve.

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^[1] These conditions are increasingly observable across geographies—from prolonged drought in the western United States and intensifying hurricane seasons on the Gulf Coast to record heat across Europe.

^[2] Extreme Weather to Spur $20 Trillion in Global Spending, BI Analysts Say – Bloomberg

^[3] Id.

^[4] Id.

^[5] Id.

^[6] Id.

^[7] Analysis of the effect of extreme weather on the US domestic air network. A delay and cancellation propagation network approach – ScienceDirect

^[8] https://www.velaw.com/insights/uncertainty-abounds-regarding-compliance-with-the-california-climate-laws/

^[9] https://www.velaw.com/insights/sec-moves-to-rescind-climate-related-disclosures-rules/

^[10] https://www.efrag.org/en/esrs-for-certain-noneu-undertakings-in-accordance-with-article-40a-of-the-accounting-directive

^[11] https://jcl.law.uiowa.edu/sites/jcl.law.uiowa.edu/files/2023-01/BebchukTallarita_Online.pdf

^[12] Extreme Heat Forces Climate Risk Reckoning for Private Market Players – Bloomberg

^[13] The returns on resilience

^[14] https://www.velaw.com/insights/another-nail-in-the-coffin-sec-proposes-total-rescission-of-climate-related-disclosure-rules/

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.