A climate risk analysis serves as a proactive tool to identify both opportunities and risks, enabling businesses to adapt their models to shifting climatic conditions while minimising damage to people, the environment, and assets
These days we frequently hear of multiple crises as society and companies face major economic, ecological, social and political challenges. Each crisis amplifies the effects of others and delaying measures to address even one – particularly those targeting climate and biodiversity challenges – can lead to significant economic and environmental repercussions.
Knowledge of the dangers posed by natural hazards is the foundation of forward-looking climate risk management. The identification of current and future risks associated with climate change is a cutting-edge approach that significantly enhances the climate resilience of companies.
Climate risks and transformation risks are deeply interconnected. Beyond the financial losses caused by physical risks such as extreme weather events, companies must also address transformation risks to facilitate the shift toward a low-carbon economy. By conducting scenario analyses, businesses can quantify these risks and implement targeted measures to enhance the resilience of their business models. Developing adaptation strategies to counter climate change is essential for strengthening resilience against its growing impacts.
The EU Omnibus Regulation has undoubtedly introduced welcome simplifications. The rules surrounding non-financial reporting (CSRD) and the Taxonomy Regulation were previously complex and interpreted too rigidly. While the reduction in the number of companies required to comply with reporting obligations – to roughly 20% – is viewed critically, especially by parts of the financial sector, it is essential for generating the data needed to drive the Clean Industrial Deal. On a positive note, the “stop the clock” provision, which delays reporting requirements under the CSRD, Taxonomy Regulation, and supply chain obligations, offers businesses the opportunity to engage more thoroughly with these issues. Encouragingly, only 17% of companies in Germany are postponing decarbonisation measures due to current geopolitical challenges, although 52% are scaling back planned investments because of economic uncertainties
Why perform a climate risk analysis now?
The economic impacts of climate change are becoming increasingly evident. Diminished water levels in waterways are disrupting supply chains, droughts are impairing the production of food and energy crops, floods are damaging infrastructure, and extreme heat is affecting both technical processes and employee performance. Numerous other examples underscore the far-reaching consequences of this global crisis.
A climate risk analysis serves as a proactive tool to identify both opportunities and risks, enabling businesses to adapt their models to shifting climatic conditions while minimising damage to people, the environment, and assets. By facilitating data-driven decisions, it helps organisations implement targeted measures to overcome risks efficiently and sustainably. Such analyses not only bolster resilience to climate change but also enhance awareness of its challenges, supporting the development of long-term sustainable strategies. Utilising climate models, these analyses reveal the impact of climate change on companies and their business structures. Through a comprehensive climate risk and vulnerability assessment, companies can address physical, location-specific, transitional, and business model-related risks while devising adaptation strategies that enhance their resilience and future readiness.
Why should companies develop a transformation path now and to what extent is the financial industry interested in it?
The objective of achieving a decarbonised economy and attaining carbon neutrality in the EU by 2050 remains firmly supported under the Clean Industrial Deal, which follows in the footsteps of the Green Deal. Transformation strategies are based on as-is analyses and carbon footprint calculations, helping companies adapt to constantly changing market conditions and technological developments, and to achieve strategic goals, and increase competitiveness. The goal is to remain successful in a decarbonized economy in the long term.
The financial sector, firmly established as a key driver in the transition to a decarbonised economy—known as “transition finance” – is increasingly interested in credible and transparent decarbonisation pathways. These pathways serve as essential tools for decision-making in the provision of services, whether it be financing or insurance.
The aim of risk management is to identify potential risks in order to better anticipate and manage them. An effective risk management system optimally prepares companies for future challenges. Not assessing climate risks and transformation risks today can lead to financial losses in the short term and jeopardize the company’s success in the long term. Effective risk management always highlights opportunities. Both climate change and the goal of the transformation to a decarbonized economy hold many opportunities, both at the societal and corporate level. It is important to identify these opportunities, implement the right measures to lead the company into a successful future.
Harald Ketzer
Risk & ESG Consultant
T +43 664 888 44 707
