Risk to Resilience in the Pet Industry: Part I The Fundamentals of Climate & Sustainability Risk

| Article by Hannah Hintz, Sr. Sustainability Analyst, PSC, Bard MBA in Sustainable Business, GARP SCR (Sustainability & Climate Risk) Certificate Holder |

At the Pet Sustainability Coalition, we work with companies across the pet industry to translate complex environmental challenges into practical business decisions.

One theme continues to surface across brands, manufacturers, and suppliers: risk is an increasing issue. Not just in scale, but in type.

Climate and sustainability risks can no longer be separated from core business strategy. These risks are shaping cost, supply stability, regulatory exposure, and long-term growth.

This first article in the Risk to Resilience series focuses on the fundamentals, what these risks are, how they show up, and why they matter for the pet industry.

Climate Risk Is a Business Reality

Sustainability and climate-related risk refer to the potential for financial loss or business disruption arising from environmental change. Terms such as “climate risk,” “climate-related risk,” and, in some contexts, “sustainability risk” are often used interchangeably, though sustainability risk can extend beyond climate to include broader environmental and social factors. Regardless of terminology, these risks can be assessed using the same core principles businesses already apply to more familiar risk categories, such as operational, reputational, or supply chain risk.

This framing is widely used across financial and regulatory communities. For example, the Task Force on Climate-related Financial Disclosures (TCFD) positions climate risk within established risk management processes, reinforcing that climate considerations are not a new type of risk, but an extension of existing frameworks applied to a new and evolving set of drivers.

This risk is not abstract, or even future-focused. It is already influencing how companies operate. Across the pet industry, we are seeing:

• Ingredient variability tied to drought, soil degradation, and shifting growing conditions
• Manufacturing interruptions due to extreme weather or resource constraints
• Increased costs linked to energy, water, and raw materials
• Greater scrutiny from retailers, regulators, and consumers

According to the Intergovernmental Panel on Climate Change (IPCC), even relatively small increases in global temperature can drive significant changes in agriculture, water systems, and infrastructure, all of which underpin business operations (IPCC Guidance on Climate Risk Concepts, 2021).

For an industry built on consistent quality, safety, and supply, these disruptions are highly material.

Two Primary Types of Climate Risk

To support actionable insights, it helps to break climate and sustainability risk into two core categories.

1. Physical Risk: When Environmental Change Disrupts Operations

Physical risk comes from direct environmental impacts, both sudden events and long-term shifts.

These risks generally fall into two categories:

• Acute risks – immediate, event-driven disruptions such as wildfires disrupting logistics, flooding that can shut down a supplier or storms delaying shipments
• Chronic risks – develop gradually over time such as declining crop yields, ongoing water scarcity, and gradual shifts in where key ingredients can be sourced

Acute risks tend to be visible and disruptive in the moment. Chronic risks are less visible but often more consequential, showing up as sustained cost increases and supply instability over time. Both are already visible across the pet industry.

The USDA notes that climate variability is already affecting crop yields, water availability, and livestock systems across the United States, with direct implications for agricultural supply chains (USDA Climate Hubs).

For many companies, this is not a future planning issue. Risk becomes visible is through disruption and in turn cost volatility.

Physical climate risk is already influencing sourcing, pricing, and operations today.

2. Transition Risk: When Markets, Policies, and Expectations Shift

Transition risk reflects how the broader economy responds to environmental pressures. While these shifts may lead to positive environmental outcomes, they can create financial and operational challenges for companies, including the need for significant time, capital, and internal resources to adapt.

In the pet industry, these transition risks are already evident. Packaging expectations are shifting toward reduced waste and more circular systems, requiring companies to rethink materials and design. At the same time, ingredient sourcing is under greater scrutiny requiring transparency, pushing companies to better understand and manage their supply chains. Marketing claims are also being evaluated more closely, increasing the risk of reputational harm when statements are not clearly supported by data.

Transition risk often becomes visible first through changing requirements and expectations, which then translate into cost pressure, reformulation needs, and shifting market access. It is already impacting marketing and operations today and often moves faster than expected, especially when driven by policy, customer demand, or industry standards, all of which are relevant in the pet industry.

Why the Pet Industry Is Particularly Exposed to Climate Risk

The pet industry sits at the intersection of agriculture, manufacturing, and consumer trust.

That creates a unique risk profile.

These dependencies are rooted in the natural systems that make production possible; reliable water for manufacturing, productive land for ingredient sourcing, and stable weather patterns that keep supply chains predictable. When these systems are disrupted, business continuity is directly affected.

Risk Is Not Just Exposure, It Is a Function of Preparedness

One of the most important shifts we see in our work is how companies think about risk.

Risk is not only about knowing what hazards might exist. It is also about:

• Exposure – where your operations and suppliers are located
• Vulnerability – how prepared those operations are to respond

For example, let’s say two hypothetical pet food brands source the same key ingredient from a drought-prone region.

• One company has diversified suppliers across multiple geographies and built flexibility into its formulations
• The other relies heavily on a single region with limited contingency planning

When drought conditions reduce yields, both companies are exposed, but the outcomes differ. The first maintains supply with manageable cost increases. The second faces shortages, reformulation challenges, and potential product delays.

The difference is not the hazard. It is preparedness.

Risk Is Increasingly Embedded in Regulation

Climate and sustainability risk is also becoming a regulatory expectation, not just a voluntary practice.

Frameworks like the International Financial Reporting Standards (IFRS S2 Climate-related Disclosures) have influenced disclosure requirements globally, and many jurisdictions now require companies, particularly large corporations and financial institutions, to assess and report climate-related risks as part of financial filings.

In Europe, the United States (California’s SB-261), and other markets, regulations are expanding to include supply chain transparency, emissions reporting, and environmental claims. This means companies in the pet industry, especially those selling into regulated markets or working with large retailers, are increasingly expected to understand and manage these risks.

Moving from Awareness to Action

Understanding risk is the first step toward resilience. Across the industry, we see leading companies beginning to:

• Map supply chain dependencies and identify critical vulnerabilities
• Evaluate ingredient sourcing through a risk and resilience lens
• Improve operational efficiency to reduce exposure to energy and resource volatility
• Align product and packaging strategies with emerging expectations

These actions are not separate from business performance. They are directly tied to cost control, supply continuity, market positioning and resiliency.

The Takeaway: Turning Risk into Resilience in the Pet Industry

Climate and sustainability risks are already influencing how the pet industry operates, from ingredient availability and production costs to customer expectations and market access.

For leading companies, the question is no longer whether these risks matter, but how proactively they are being addressed. Organizations that are building resilience today are building climate risk assessment and management into company governance. By building in climate risk to business strategy, companies can proactively engage and uplift their supply chain and meet the consumer’s needs, creating a competitive advantage.   

The opportunity is to move early, before disruption forces reactive decisions. Companies that do are better positioned to manage volatility, maintain trust, and compete in a changing market.

Ready to turn these insights into action?

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