Climate Risk

Climate risk refers to the potential of adverse impacts on humans or organizations due to climate change. This includes impacts on lives, livelihoods, health and wellbeing, economic, social, cultural, infrastructure and ecosystem.

Broadly climate risk can be classified as Physical risk and Transition risk

Physical risk – Potential for physical damage and financial losses due to increased exposure to climate change
Types of Physical risk:
Acute – Risk associated with climatic events like storms, floods, hurricanes, earthquakes etc which has instant impact to physical properties causing disruption to the continuity of business along with high financial losses.
Chronic –Risk driven by long term climate change patterns like rising sea level, rising global mean temperature, changing precipitation patterns, increase in frequency of droughts etc. This risk adds up cumulatively and impacts financial performance

Transition risk – Risks that arise from the uncertainty created by the shift towards a low carbon economy
Types of Transition risk:
Legal & Policy– Risk associated with the policy changes related to climate change. There are two types of policay changes (i) Policy changes to restrict current approach or activities which is contributing to climate change (ii) Policy changes that promotes climate action to create awareness and reduce impact on climate change eventually
Market– Market can be impacted in multiple complex ways due to climate change. One of the common ways is through changes in supply and demand for certain commodities, services and products.
Technology– Investing in disruptive new technologies and moving away from old systems to move towards a low carbon economy can have a significant impact in the economics of an organization.
Reputational– Risk associated with changing consumer behaviour, investor sentiments , community perceptions on the organizations plan and action towards a net zero economy. The organizations have to be very cautious on how and where they invest and how they contribute towards SDG’s to keep the consumer sentiment positive.

-Team Risk Unplugged