El Niño is Returning: Are Enterprises and Cities Prepared?

1. What is El Niño and Why it matters 

1.1 A recurring but disruptive climate driver

Recently, several global climate & weather organizations such as the World Meteorological Organization (WMO) and the National Oceanic and Atmospheric Administration of the United States (NOAA) have confirmed that the El Niño conditions are already developing and will continue to develop further coming winter. 

The El Niño - Southern Oscillation (ENSO) is a natural climate phenomenon centered around the tropical Pacific Ocean with global implications. ENSO comes in two flavors: El Niño and La Niña.  During the positive phase, called El Niño, the central and eastern Pacific is warmer than average (figure 1), and during the negative phase, called La Niña, the central and eastern Pacific is cooler than average. States in between El Niño and la Niña are considered neutral and correspond to average conditions. Both phases of ENSO strongly influence global temperature and rainfall patterns – but the most pronounced impacts typically occur in the year following the onset of El Niño. The tropical Pacific cycles between El Niños, neutral and La Niñas with cycles lasting between 2 and 7 years. While El Niño is a natural phenomenon, it exacerbates the impacts of climate change because it amplifies its effects on extreme events and trends in many parts of the world.

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Figure 1: How does El Niño form. Source: WMO

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1.2 Latest scientific outlook (NOAA / WMO)

The recent publications by WMO & NOAA indicate that the El Niño has already begun and that there is a 63% probability it will grow into a very strong event later this year. There is still a small degree of uncertainty about El Niño peak intensity and timing, but most forecast models suggest at least moderate intensity, and possibly even very strong intensity towards the end of the year (figure 2). Strong impacts due to El Niño in terms of droughts, storms, floods, wildfires and heatwaves may thus occur as early as late 2026 and are expected to peak in 2027.

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Figure 2: El Source Niño strength probabilities. Source: NOAA

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2. How El Niño Translates into amplified Business & Territorial Risks under a warming world

2.1 Physical hazards intensification

El Niño is associated with above average global temperatures and indeed temperatures are forecasted to be above normal for several months nearly everywhere in the world (figure 3). This increases the likelihood that 2026 will break the 2024 record as the hottest year ever observed in terms of global average temperature. It will almost certainly lead to more intense & frequent heatwaves across the globe particularly in South Asia, South-East Australia and parts of South America (NOAA). This will likely further decrease labor productivity, increase cooling costs, increase mortality of vulnerable people, and negatively impact crop yields and degrade ecosystems.

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Figure 3: Forecast for July-August 2026: Prepare for hotter-than-normal temperatures across nearly all parts of the globe. Source: WMO

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Regional changes in rainfall amounts & patterns are typical for El Niño events and increase the probability of extremes in affected regions (e.g. increased rainfall and flooding, as well as drier conditions and droughts) (figure 4). For example, it has been shown to increase the likelihood of severe and more widespread flooding in parts of South America, East Africa, and the southern United States, and to increase the likelihood of drought conditions-in eastern and northern Australia, Indonesia, southern Africa, and parts of South Asia. In the case of a strong El Niño, impacts may reach far beyond the equatorial & Pacific zones and may also influence the weather in Europe. For example, in this case, increased storm activity may be expected over Europe next winter (ECMWF, Met Office). 

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Figure 4: El Niño dry & wet conditions around the world. Source: NOAA

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2.2 Sectoral exposure

The Food and Agriculture Organization (FAO) calculated that during the El Niño event of 2015-2016 more than 60 million people around the globe were affected by El Niño-related droughts, floods and extreme hot and cold weather. Below are some sectorial impacts from exposure to El Niño for the key sectors.

Energy

In the energy sector, El Niño may lead to variability in hydropower generation due to significant reduction in river flow and rainfall in the areas affected by drought. For example, Colombia heavily depends on hydropower for electricity generation but experienced a drop in rainfall of ~40% and a drop in reservoir levels by 60-70% during the 2015-2016 El Niño event (United Nations/World Energy Council). This led to electricity shortages, price spikes and increased costs for emergency measures.

Winters in North America and Europe are more likely to be mild in the 2026-2027 season and may lead to a smaller heating demand (Becker & Tippett, 2024). Tropical & sub-tropical regions by contrast are more likely to experience a significant increase in cooling demands in 2026 (NOAA). This will affect energy demand and price evolution and may also lead to operational downtime if cooling demands cannot be satisfied.

Agriculture & Food

Yield volatility and irrigation demand will very likely be significantly increased by El Niño in the regions already under water stress such as South Asia, South Africa and Australia.

For example, the United States Department of Agriculture (USDA) mentioned that during the 2015-2016 El Niño, drought led to large-scale staple crop failure in South Africa where Maize (corn) yields dropped by 50% compared to the 5-year average.

Logistics and Infrastructure

El Niño leads to a strong risk of significant increase in rainfall around the pacific coast of South America. This increases the risk of flooding leading to potential business interruption. The 2015–2016 El Niño triggered severe flooding across parts of South America. In Peru, for example, extreme rainfall events in early 2016 delivered more than 700 mm of rain in less than a week, causing widespread flooding, landslides, infrastructure disruption and power outages (NASA GPM, 2016; FAO).

2.3 Supply chain and macroeconomic disruption

All the sectorial impacts mentioned above initially limit themselves to the impacted regions. However, in the 2 or 3 years after the El Niño, cascading effects have been observed: initial shocks such as shortage in hydroelectric power, damage to infrastructure, increased costs of maintenance, low yields and decrease in fishery production eventually affect the global economy through the supply chains. The scientific study by Liu et al. (2022) showed that the two previous El Niño events of 1997-1998 and 2015-2016 may have led to multi-trillion-dollar economic impacts. These impacts are mainly propagated through commodity price shocks (food, energy), regional production losses and insurance & financing stress.

Organizations cannot treat El Niño as a short-term anomaly—it is a recurring systemic risk that amplifies the physical impacts of climate change and requires a structured climate risk assessment and adaptation planning.

2.4 Impacts on cities

Cities are highly exposed to climate risks as they concentrate population, infrastructure & economical assets in one area. They are especially vulnerable to the physical risks that can be exacerbated by El Niño such as heatwaves, floods and droughts. The high vulnerability is due to urban systems acting as amplifiers of climate hazards. For example, the effects of a heatwave are amplified in areas with a small fraction of vegetation and a large fraction of artificial development (heat-island effect), and the effects of floods (flash floods) are amplified by the large fraction of impermeable areas that reduce soil infiltration.

The effects of El Niño may also disrupt critical urban systems such as the water supply and energy infrastructure and may cause cascading impacts. Nowhere may cascading risks become more concentrated than in large cities.

3. From Awareness to Action: Climate Risk Assessment & Adaptation

While El Niño is a near-term and relatively predictable climate phenomenon, its regional manifestations and sectoral impacts are probabilistic and can vary significantly. Forward-looking climate risk assessments are therefore necessary to translate climate signals into actionable risk scenarios and to support informed decision-making and preparedness. There are several international frameworks that advise on what a climate risk assessment needs to entail, such as the IFRS S2 (International Financial Reporting Standards Climate Related Disclosures). The results of a climate risk assessment should guide the deployment of appropriate adaptation strategies (preventive measures) that help mitigate the impact of expected climate hazards.

At SE Advisory Services, we support organizations in their climate risk assessment and adaptation strategy for both strategic and regulatory purposes. We have over 10 years of expertise in climate risk assessments with over 200 completed projects worldwide across all sectors of activity for organizations of all sizes. Our climate scientists, economic experts, and industry experts help organizations identify their climate risks, understand impacts, develop effective adaptation strategies, and deploy their climate mitigation approaches.

3.1 Key steps in a climate risk assessment

Our state-of-the-art end-to-end climate risk assessment consists of 4 main steps.

Step 1 – Assess exposure and vulnerability: Organizations first identify their critical assets and key geographies and perform an exposure assessment to 28 climate hazards of the EU taxonomy for at least one high greenhouse-gas-emission scenario such as the SSP5-8.5. This exposure assessment will in turn identify the hazards that their critical assets and supply chain are most exposed to in the short and long-term. Organizations then need to evaluate the sensitivity of their critical assets and supply chain to the identified hazards.

Step 2 – Quantify financial impacts: After the exposure and vulnerability are evaluated individually, the material climate hazards are identified by combining exposure and vulnerability scores. To fully appreciate the potential impact of material hazards and to address them in the most effective manner, the risk scores are translated into financial impacts, such as revenue loss, increased costs, and additional capex needs.

Step 3 – Define adaptation strategies: With the main risks and their financial impacts quantified, an adaptation strategy is defined by assessing what adaptation measures are already in place, what cost-effective adaptation measures are available, and what adaptation measures should be prioritized at site level. Adaptation measures may, for example, improve water efficiency/reuse, site protection (flood barriers, drainage), supply diversification, or designs of cooling systems.

Step 4 – Integrate into governance: Finally, the climate risk and adaptation strategy is integrated into the organization’s governance. This not only allows the organization to move to proactive risk management and to protect financial performance, but it also feeds CSRD/ESRS reporting and investment decisions. Integrating the risks into governance will also enable the organization to monitor these risks, their impacts, and adaptation strategies.

3.2 Leveraging Advanced Tools: The Role of Resource Advisor+ for Climate Risk

Translating climate signals such as El Niño into actionable business insights is a complex exercise that’s made significantly easier with the use of digital climate risk tools. These tools process complex climate data from many high-resolution climate models to help organizations understand exposure and translate it into decision-useful information. Utilizing climate risk software allows businesses to get a holistic view of climate risk across their entire organization and value chain so they can turn climate risk data into actionable intelligence.

At SE Advisory Services, we have developed a powerful climate risk solution called Resource Advisor+ for Climate Risk.  This software is built on a robust scientific and mathematical foundation that leverages expertise from leading climatologists. It uniquely combines high-resolution hazard data with financial impact modeling, so you can see where your risks exist across sites and suppliers and quantify the cost, revenue, and investment implications. With Resource Advisor+ for Climate Risk, you can not only understand your exposure to current and future climate hazards, but also prioritize adaptation actions so you know where to act first.

Resource Advisor+ for Climate Risk is embedded within the larger Resource Advisor+ platform, which is SE Advisory Services’ AI-native energy and sustainability solution. Rather than treating climate risk, reporting, and supply chain as separate activities, they are connected in a single platform so you can make data-driven decisions across the entire value chain.

4. Conclusion: A Narrow Window for Preparedness

The 2026-2027 El Niño will most likely be accompanied by many disruptive climate hazards. As El Niño is developing at this very moment, the window to get prepared for its potential impacts is narrow. Organizations that act now—by assessing risks and implementing adaptation measures—will not only reduce losses but gain a competitive resilience advantage. Act now or pay later.

Want to learn more? Explore Resource Advisor+ for Climate Risk. 

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