The Importance of Climate Risk Assessments

What is a climate risk assessment?

Climate risk assessment describes a systematic process in which companies (and other institutional entities) can identify potential hazards from climate-related events to potentially avoid or manage these risks. Climate risk doesn’t only assess the physical, more direct effects of climate change (like heat waves, droughts, floods, wildfires, etc.), but companies could find themselves at the center of a boycott or protest; or even worse, the effects climate-related regulation/litigation has on a company’s operations and revenues. For example, industries that produce excessive amounts of greenhouse gases are at risk of a number of lawsuits if damages can be related back to emissions. 

The importance of assessing for climate change

Climate change has a negative impact on all of us, from our health to our environment to the society we live in. As climate change increases, so will the number of climate disasters that will impact our daily lives. The effects are already apparent today, with studies finding that kids today will suffer many more extreme heatwaves and other climate-change-fueled disasters over their lifetimes than their grandparents (assuming limited or no action occurs to curb emissions). Companies need to be prepared for the oncoming climate crisis if they want to stay ahead of the market, as climate disasters can significantly disturb supply chains operations and other costs (like property and casualty insurance). Financial risks from climate change can be minimized in the future, but only if climate risks are assessed, and there is an orderly transition to a low-carbon economy. 

How companies can get started with climate risk assessment

There are a few ways companies can get started with climate risk assessments and minimize the impact of climate-related risks on their operations and revenues, some of which include:

• Gathering information that would be required for a climate risk assessment (such as current resource usage, performance data, data on past weather variability, regional and local projections of temperature increases, etc.). It would also be helpful to look into using environmental management software to streamline this research as well.
• Figure out the best method of climate risk assessment for your organization, such as screening assessments (provides a top-level view of potential climate risks for the company), modeling/scenario (helps in understanding future risks from climate change), or third-party assessments (working with outside consultants to assess climate risks).
• Identify the best resources available that will help complete the assessment, or utilize free climate risk screening tools like the World Bank Climate Screening Tools or ThinkHazard!

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