• FutureTrack

Getting real about climate change risk assessment

Many organisations have been making great progress measuring their carbon footprints. Some have also been disclosing those footprints in their annual reports, sustainability plans, or well-known disclosure platforms like CDP, PRI or GRI. The organisations that are furthest forward are even looking at emissions in their supply chains – the so-called ‘embodied’ carbon that makes up part of Scope 3 emissions in the Greenhouse Gas Protocol. However, this raw data doesn’t tell organisations whether and how climate change as a whole is going to cause problems to their business. For this, a climate change risk assessment is needed.


What is a climate change risk assessment?


A climate change risk assessment identifies mechanisms by which climate change represents a threat to a business’s ongoing sustainability and evaluates how serious the threat is, whether quantitatively or qualitatively. For some organisations the threats are clear. If you have an office next to the sea threatened by rising sea levels, or run an enterprise growing crops in an area where rainfall is reducing every year, you will be starkly aware of the need to cut emissions and also make changes to adapt and increase your resilience. However, many businesses have not yet made these links or formally assessed the risks.

Hazards, exposure, vulnerability?


There are some important terms used in discussions around climate change risk. Risk itself is usually understood to be a combination of both magnitude (how serious something is) and probability (how likely it is). However, the following definitions are also important in identifying and evaluating risks.


A hazard is the physical event itself, caused or made more likely by climate change. Some hazards are chronic, meaning that they appear slowly and over many years or decades, such as sea level rise where projections from the IPPC show levels likely rising between 45-82cm by 2100. Other physical climate change hazards include extreme weather events such as floods, storms, hail or drought, which may all become more likely in particular parts of the world under increased global temperatures.


The risk exposure is whether a particular asset is at all likely to be affected by a hazard. The most obvious example is in the spatial dimension of climate change, where certain hazards are likely to arise only in certain regions. Business sited only inland, for example, are unlikely to be exposed to sea level rise (although their supply chains may well be).


The vulnerability is an expression of an asset or person’s propensity to suffer harm when exposed to a hazard. This may be due to susceptibility or sensitivity to change; a lack of resilience to withstand hazards in the short term (or to return to a stable state once disturbed); or a lack of adaptability to hazards in the longer term.

The combination of a hazard, together with exposure of a vulnerable asset to that hazard, results in a risk.

A climate change risk assessment may not be focussed on your own internal operations. Even if your offices, employees and equipment are safe from immediate hazards such as sea level risk, flooding or storms, what about the assets and operations of your suppliers or customers?

How can ESI Monitor help with climate change risk assessments?


At ESI Monitor, we can provide a range of targeted services to help organisations, whether they are starting out on their journey of climate change risk assessment or already well on their way.

For those just starting out, FutureTrack provides a simple introduction to environmental footprinting. This will help identify sources of greenhouse gas emissions from your operations, with measurement carried out in accordance with the Greenhouse Gas Protocol and ISO 14064-1.


If your organisation already has a clear understanding of its footprint, or wants to immediately carry out a climate change risk assessment, we can also help. The next steps are:

  • Identify current and future climate change risks at different climate scenarios

  • Evaluate the significance of potential impacts on your organisation

  • Create mitigation and adaptation plans, and implement and monitor these plans

Some parts of this process are standardised (such as selecting future climate scenarios) and others will need to be tailored to your organisation, so we can carry out a quick initial screening to help scope these bespoke elements. If our initial screening identifies that there are likely to be specific risks imposed by climate change on your organisation, we can reach out to our network of specialist consultants to address aspects such as water stress, human rights and geopolitical risks.

Other considerations during a climate change risk assessment


The purpose of a risk assessment is an important aspect to consider before starting. If it is only for internal purposes then your approach can be very flexible, but if you want to be able to use your risk assessment to inform external parties, such as investors, you will want to align with disclosure principles, such as the Financial Stability Board’s Taskforce for Climate-related Financial Disclosure (TCFD). This is a set of principles to ensure that everything investors and regulators need to know is considered, and is increasingly the de facto standard for climate change risk assessment, climate scenario analysis and disclosure. ESI Monitor’s team are highly familiar with the TCFD recommendations and can help businesses align their risk assessment and disclosure with them.


There is another tricky topic to be considered as well – ‘transition’ risk, which is the ongoing risk to an organisation of losing value due to changes in the economy or regulation as the world transitions away from fossil fuels and towards more sustainable business models. It’s particularly relevant to organisations whose business today depends on a plentiful supply of cheap coal, oil or gas, and who don’t have a clear plan for converting to low-carbon operations. We’ll cover transition risk in another article soon.



References

Cardona et al, 2012. Determinants of risk: exposure and vulnerability. In: Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation, A Special Report of Working Groups I and II of the Intergovernmental Panel on Climate Change (IPCC) – https://www.ipcc.ch/site/assets/uploads/2018/03/SREX-Chap2_FINAL-1.pdf Field et al, 2014. Summary for policymakers. In Climate change 2014: impacts, adaptation, and vulnerability. Part A: global and sectoral aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC)

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