The identification and scoping of climate risks involves first defining the boundaries and criteria for the risk assessment. This determines which areas of an organization are included and excluded from the assessment. Some organizations may wish to focus only on the potential physical risks to their facilities, while others may decide to prepare for risks across their entire supply chain. Boundary setting and scoping will therefore vary by business sector, size, values, and location.
Sussman and Freed (2008) developed three helpful climate risk screening questions that can help businesses with the risk identification and assessment[1]:
- Is climate important to business risk?
- Is there an immediate threat? or are long-term assets, investments, or decisions being locked into place?
- Is a high value at stake if wrong decisions are made?
To help with scoping, an organization may decide to breakdown aspects of its organization into several categories. Several risk assessment frameworks provide different categories that businesses can use to identify and assess risks. It is also important to incorporate stakeholder feedback throughout the assessment and analysis process. Employees may help identify risks from other perspectives that were not initially considered.
Key categories or organizational elements for businesses to consider in the risk assessment process include:
- Finance
- Operations including Supply chains
- Regulatory compliance
- Market
- Premises
- People
- Assets
- Reputation
- Technology
When considering the scope of a risk assessment, it is also important to identify the different types of climate-related risks for a business, several of which are as follows:
- Physical Risks: Changes in temperature, precipitation, and extreme weather may have adverse physical impacts on buildings, infrastructure, people, products, food, etc. This could result in physical damages or increased costs as certain materials become harder to obtain.
- Reputational Risks: Growing public concern about climate change may present a risk to an organization or product if they are viewed as not being climate responsible.
- Transitional Risks: As more governments, companies, and consumers push for a transition towards net-zero and away GHG-intensive energy systems, organizations may find themselves at risk of being left behind or becoming obsolete in the face of changing standards and preferences.
- Regulatory Risks: Increasingly ambitious government climate change commitments and targets, and advances in data and technology may result in new regulations and policies that have significant implications for various businesses.
Bottom Line
Boundary setting, scoping, and stakeholder feedback are all crucial when determining which areas of your business you would like to assess for climate risk. When considering the scope of a risk assessment, it is also important to identify the different types of climate-related risks for a business. Creating categories or organization elements will help break down the risk assessment into areas that will be easier to focus on.
Partners in Project Green’s Building a Climate Resilient Business Resource Kit provides a foundation in the basics of current climate science, the impacts of climate change on businesses, and mitigation and adaptation strategies. Please explore these resources and connect with us to advance your organization’s climate resiliency.
To learn more about climate change adaptation, check out:
[1] Sussman, F.G., and Freed, J.R. 2008. Adapting to Climate Change: A Business Approach. Pew Centre on Global Climate Change. URL: https://www.c2es.org/document/adapting-to-climate-change-a-business-approach/