Once the risk assessment boundaries have been determined and potential risks have been identified, risks may be quantified and analyzed further to determine how they may manifest for an organization. This part of the process involves quantification of risks and scenario planning or stress-testing. There are typically two approaches to risk analysis: a bottom-up or vulnerability-based approach and a top-down or hazard-based approach[1]. The bottom-up approach starts with a particular challenge or vulnerability in mind and assesses if this challenge will be more likely to occur with climate change. For example, an organization may determine that their facility would suffer unacceptable damage and loss with a flooding event of any magnitude. Through the bottom-up analysis process, they may find that climate change will increase the probability of flooding in their area and therefore represent a significant risk to their operations. In contrast, a top-down approach starts with a potential change in the climate, such as an increase in global temperatures of 2°C and works its way down through the organization to determine the impact. An organization may find that at a 2°C increase in global warming will increase the occurrence and severity of extreme heat waves, which may have significant impacts on their outdoor workforce, requiring more breaks to provide relief from the heat.
Quantifying potential future climate change impacts on an organization will require some form of scenario analysis. The emissions scenarios developed by the IPCC for their Assessment Reports, account for possible climatic futures that result from different global trends and economic behaviour. Since no one can predict the future, scenarios offer helpful tools for planning as they project possible sequences of events and outcomes based on current understandings of geophysical processes. Risk analysis that utilizes multiple scenarios and model projections can help businesses account for future uncertainty by capturing a range of potential future impacts that businesses need to prepare for[2].
Analyzing potential impacts from climate change on an organization involves making the connection from the effect of a climate variable on an aspect of the business within the scope of the risk assessment. In some cases, there will be a direct impact that will be easy to connect with a specific change. For example, extreme heat over a specific temperature threshold (e.g., >32°C) may trigger a company’s heat break policy or flooding over a certain level may damage specific infrastructure. In other cases, the exact impact of climate change will be more difficult to quantify as it will depend on several other factors, such as crop heat-stress depending on temperature and precipitation. Quantifying impacts by establishing a rating system that categorizes each impact based on its magnitude (e.g., high, medium, or low) can be a helpful approach[1]. Such a rating system will differ by organization. The quantification of the impacts identified will then allow an organization to further evaluate and prioritize actions to address the risks these impacts present.
Bottom Line
There are typically two approaches to risk analysis: a bottom-up or vulnerability-based approach and a top-down or hazard-based approach. in either approach, quantifying potential future climate change impacts on an organization will require some form of scenario analysis. Climate change will make direct and indirect impacts on a business, and analyzing scenarios will help a business understand the risks and help prioritize them to address accordingly.
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[1] Arnell, N. 2015. A Short Guide to Climate Change Risk. Routledge, 1st Edition.
[2] Dembo, R. 2021. Risk Thinking… In An Uncertain World. Archway Publishing. Print.