CLIMATE RISK
97% and Counting: The Corporate Exposure Map as El Niño 2026 Locks In
The US Climate Prediction Centre now puts a 97% probability on El Niño persisting into early 2027, with Pacific sea-surface temperatures running hotter than at the same stage of the 1997 and 2015 events. The Government is advancing the Maha cultivation season; hydropower curtailment has been reported as reservoirs are managed for a dry season. This is the data update our June corporate climate-risk analysis was waiting for — and the exposure map for Sri Lankan boards now sharpens.
By the ESGNexus Editorial Team · July 2026 · Estimated reading time: 7 minutes
KEY TAKEAWAYS
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In June, ESGNexus mapped how a developing El Niño would transmit into Sri Lankan corporate performance — through hydropower, agriculture, food prices, and insurance claims. The two data releases that analysis was waiting on have now landed, and both point the same way. By mid-June, Pacific sea-surface temperature anomalies had reached approximately +1.7°C, running stronger than at the corresponding stage of the 1997 and 2015 events — the two most powerful El Niños in the modern record. And the US Climate Prediction Centre now puts the probability of the event persisting into early 2027 at 97%.
This is no longer a forecast to monitor. It is an operating assumption to plan against. The question for Sri Lankan boards has shifted from whether the 2026–27 seasons will be disrupted to which kind of disruption arrives — and the honest answer, for now, is that both drought and flood remain live scenarios.
Source: Daily FT, ‘Super El Niño 2026/2027: Will Sri Lanka face drought or floods?’, 25 July 2026 — ft.lk (column by a former Director of the Department of Agriculture’s Natural Resources Management Centre)
Drought or Flood: Why the Indian Ocean Dipole Decides
El Niño’s textbook effect on Sri Lanka is suppressed monsoon rainfall. But the island sits in the Indian Ocean, and the Indian Ocean Dipole — the temperature gradient between the western and eastern Indian Ocean — can override the Pacific signal. A positive IOD warms the western Indian Ocean, promotes cloud formation near Sri Lanka, and boosts rainfall, particularly during the October–November second inter-monsoon. Forecasters currently assign a 60% probability to a positive IOD developing toward late 2026.
History offers both comfort and warning. In 2015, a strong positive IOD alongside a very strong El Niño sustained rainfall despite the Pacific event. In 1997–98, the strongest positive IOD ever recorded coincided with an exceptionally strong El Niño — and delivered intense, flood-generating downpours rather than drought. The August–September IOD readings are therefore the single most important data release of the quarter for climate-exposed Sri Lankan businesses. The greatest concern sits with the December–February northeast monsoon, on which the Maha paddy season and reservoir inflows depend.
| “The question has shifted from whether the 2026–27 seasons will be disrupted to which kind of disruption arrives. Drought and flood are both still on the table — and they punish different balance sheets.” |
The State Is Already Moving
Two official responses signal how seriously the risk is being taken. First, the Government announced on 23 July that it is planning to advance the Maha cultivation season — the main paddy season — to get crops established before rainfall becomes unreliable, explicitly to avert an impact on food security. Second, The Morning reported in late July that the Ceylon Electricity Board has begun curtailing hydropower generation as drought looms — the standard reservoir-preservation play, trading generation today for storage insurance against a failed northeast monsoon. (The CEB had not published a dated statement on curtailment at the time of writing; we cite the press report and will update as official generation data is released.)
Source: Daily Mirror, ‘El Niño to trigger unpredictable rainfall later this year; steps taken for food security’, 23 July 2026 — dailymirror.lk; The Morning, ‘Power supply: CEB curtails hydropower as drought looms’, late July 2026 — themorning.lk
The Corporate Exposure Map, Updated
Sri Lanka’s structural exposure runs through four channels, and the early data lets us update each one.
Energy and utilities. Hydropower supplies 40–45% of national electricity needs in good rainfall years, and the system has historically absorbed drought shocks by ramping oil- and coal-fired thermal generation — roughly 47% of generation in the 2022 drought-and-crisis year. Every percentage point of hydro lost to drought becomes imported fuel burned at higher cost: pressure on CEB finances, on the import bill, and ultimately on tariffs. Energy-intensive manufacturers should be stress-testing electricity costs now; the reported curtailment suggests the CEB is already positioning for that scenario.
Plantations and agriculture. The sector enters the event already weakened. First-half 2026 tea production came in at 131.8 million kg, with low-grown output — the export workhorse — down 4% and medium-grown output down 5%, which the industry attributes to extreme weather, the lingering effects of Cyclone Ditwah (November 2025), and sharply higher fertiliser prices. June showed a 4% recovery to 22.5 million kg, but a dry fourth quarter would hit exactly the low-grown regions that are already underperforming. Listed plantation companies’ interim reports through the season will show the damage — or the resilience — first.
Food, retail, and inflation. The advanced Maha season is a pre-emptive strike against a rice shortfall. If the northeast monsoon disappoints, the sequence is familiar: lower paddy output, higher food imports, food-price inflation, and margin pressure across food manufacturing and retail — with the consumer demand effects arriving one or two quarters later.
Banks and insurers. Agricultural loan books, hydro-dependent SME borrowers, and weather-related claims all sit downstream of the same rainfall data. General insurers face the two-sided risk directly: drought suppresses crop yields, and claims arrive instead through the flood scenario if a strong positive IOD delivers 1997-style downpours.
| Sector | Transmission channel | What to watch next |
| Energy & utilities | Hydro shortfall → thermal dispatch → fuel costs, CEB losses, tariff pressure | CEB monthly generation mix; reservoir levels; fuel import data |
| Plantations | Rainfall deficit → tea/rubber yields, low-grown concentration | Tea Board monthly output; plantation company Sep-quarter interims |
| Food & retail | Maha season outcome → rice supply, food inflation, margins | Maha sowing progress; CBSL food inflation prints |
| Banks & insurers | Agri credit quality; weather claims (drought or flood) | NPL disclosures in agri-exposed lenders; insurer claims commentary |
Source: IPS Talking Economics, ‘Powering through droughts and crises’, 28 April 2026 (citing CEB statistical reports and CBSL data) — ips.lk; Daily FT, ‘June tea crop rises but 1H output hit by weather, high fertiliser costs’, 24 July 2026 (Sri Lanka Tea Board preliminary data) — ft.lk
What Boards Should Do With a 97% Probability
For the companies now reporting under SLFRS S2, this is not background news — it is disclosure material. A 97%-probability climate event with direct earnings transmission is precisely the near-term physical risk the standard’s strategy and risk-management pillars ask boards to assess and describe. Concretely: put El Niño exposure on the next board risk agenda and minute it; quantify the electricity-cost and water-supply sensitivity of operations under a drought scenario; test agricultural and hydro-linked counterparty exposure; and pre-position for the flood alternative rather than planning for drought alone. The companies that documented scenario thinking this quarter will also be the ones with defensible SLFRS S2 disclosures next reporting season.
The next milestones are the August–September Indian Ocean Dipole readings, the onset behaviour of the second inter-monsoon in October, and CEB generation data through the third quarter. ESGNexus will track each against the corporate exposure map above, as we have since our June analysis. For weekly intelligence on climate risk and Sri Lankan corporate sustainability, subscribe to the ESGNexus Weekly newsletter.
Sources & Further Reading
Daily FT — ‘Super El Niño 2026/2027: Will Sri Lanka face drought or floods?’, 25 July 2026: ft.lk
Daily Mirror — ‘El Niño to trigger unpredictable rainfall later this year; steps taken for food security’, 23 July 2026: dailymirror.lk
The Morning — ‘Power supply: CEB curtails hydropower as drought looms’, late July 2026: themorning.lk
IPS Talking Economics — ‘Powering through droughts and crises: Redesigning Sri Lanka’s energy resilience’, 28 April 2026: ips.lk
Daily FT — ‘June tea crop rises but 1H output hit by weather, high fertiliser costs’, 24 July 2026: ft.lk
US Climate Prediction Centre — ENSO diagnostic discussions: cpc.ncep.noaa.gov
| About ESGNexus ESGNexus is Sri Lanka’s independent platform for ESG, CSR, and sustainability intelligence. We track company-level ESG performance, regulatory developments, and sustainability data across Sri Lanka’s listed companies, large unlisted corporates, and state-owned enterprises. All editorial content is independently produced. Sponsored content is clearly labelled. Data disclaimer: Information in this article is sourced from publicly available documents and is provided for general information only. It does not constitute investment, legal, or business advice. ESGNexus corrects errors promptly; to flag one, contact the editorial team. Errors and omissions excepted. |