How can companies manage Climate Risk?

Climate Risk Management (CRM)

When making investing decisions, investors employ a variety of effects of climate change that are already being seen these days: According to the latest climate projections, extreme weather events will surge in the future. Events like cyclones and floods along with gradual fluctuations like sea level rise and desertification result in socio-economic qualities that will pose an increasing threat to the sustainable development of all countries, which will lead to economic and non-economic damages. Developing countries are vulnerable to such risks. It implies that the adverse effects of climate change will be noticed by both natural and social systems.

Even though efforts are made for mitigation and adaptation, the risk of lasting unfavorable effects of climate change will remain steady. Assessing and controlling risks to reduce Loss and damage is later important. The Climate Risk Assessment is an action to find, analyze, and manage these risks and address them to clients and countries.

What is Climate Risk Management (CRM) and what steps does it include?

The phrase “climate risk management” (CRM) refers to the methods used to reduce climate risk via the efforts of other sectors, such as disaster management, climate change adaptation, and sustainable development.


CRM aims to cope with climate change effects along with the entire risk variety, from short-term extreme weather events to long-term regular changes. Created for climate risk assessment, combining sustained and advanced measures from the field of climate change mitigation and adaptation, disaster risk management, and social protection into a single universal and involved structure to prevent, minimize, and address Loss and damage.

various worldwide policy plans address the subject of rising climate change hazards., e.g., in Sendai Framework for Disaster Risk Reduction, being a subsidiary of the United Nations Office for Disaster Risk Reduction (UNDRR) and underneath the United Nations Framework Convention on Climate Change (UNFCCC). Under the UNFCCC, Loss, and damage (L&D) is a topic that is gaining more awareness., which led to the formation of the Warsaw International Mechanism for Loss and Damage linked to Climate Change affects (WIM) in 2013.

Steps to get in with climate risk assessment:

  1. Get senior management support. ​
  2. Get a sense of your current data and resources. ​
  3. Define the criteria of your climate change risk assessment.
  4. Find which approach to climate risk assessment is right for your company. ​
  5. Figure out which tools and resources will aid you in completing the evaluation. ​

 The above points are discussed in detail to better understand:

  1. Get senior management support. ​

Before you started, make sure your CEO or GM is on board with climate risk management.

To do so, you must first understand senior management’s worries and inquiries about climate change and risk. Make them understand the urgency and need for climate change, as well as its negative consequences for the firm. You can go to the next phase if you have gained support from those at the top. ​

  1. Get a sense of your current data and resources

The depth of your risk assessment will find by the data you already have, the resources you have available, and the severity of the risks. Begin by assembling the data your team will need to conduct a climate risk assessment, such as:

  • the number of facilities and their location
  • statistics about current resource use and performance (i.e., water usage inventories)
  • climate-related dangers that have already been recognized
  • information about prior weather variations
  • Temperature, precipitation, and sea level rise forecasts at a regional level

You will be able to retrieve your use, risk, and performance data in minutes if you are already making use of centralized environmental management software and need to decide who will be on your risk assessment team.

The following people might be on your team:

  • senior management risk managers
  • facilities managers
  • finance staff
  • EHS personnel
  • emergency managers
  • marketing and communications staff

You may decide that your team needs the encouragement of an outside consultant in a situation. It is critical to think about a consultant’s earlier ability with climate risk assessment when picking one.

  1. Define the criteria of your climate change risk assessment.

​ It’s time to decide the criteria of your evaluation after you’ve shown your current data and resources. The following are potential areas to include in your climate risk assessment:

  • Assets & facilities
  • products
  • resources
  • usage of the land
  • customers
  • chain of supplies
  • employees
  • community

It’s fine if you discover that covering all these topics in one examination is impracticable. So many businesses choose to do a series of climate risk assessments rather than a single evaluation. The most crucial aspect is to get started.

  1. Find which approach to climate risk assessment is right for your company.

You can pick from a variety of strategies for assessing climate risk. Each strategy has the potential to yield useful data on the effects of extreme weather and climate change. These techniques are used in conjunction or alone. It is up to your team to figure out which strategy is best for your resources, ability, and circumstances.

According to C2ES, businesses across the world use five diverse types of climate assessments:

Screening assessments: often known as “desktop” examinations involve the least amount of knowledge and commitment. Since they are meant to supply a high-level picture of the company’s possible climate concerns, they have often taken as the first step before using one of the methods listed below.

Historical records of variability: You may get a sense of which dangers will rise with climate change by reflecting on historical records of variability and extreme weather.

Modeling/scenarios: Computer models can also help businesses in comprehending future climate change threats. Universities, government entities, and climate risk experts are the ones who create these models.

Third-party assessments: To detect climate-related risks, so many corporations use independent specialists. From broad “score card” evaluations to thorough assessments of individual facilities, assessments are made.

Insurers: Have put money into modeling and studying the risks associated with climate change and extreme weather. As a result, they are well-positioned to help businesses in assessing (and mitigate) the risks of future damage.

  1. Figure out which tools and resources will aid you in completing the evaluation.

Climate-related risk quantification is a challenging task. Various free climate risk screening tools are available to encourage in showing climatic trends, vulnerabilities, climate-related concerns, and workable adaptation measures.

  • Climate & Disaster Risk Screening Tools
  • Climate Change Explorer (weADAPT)
  • Think Hazard!
  • Adaptation Wizard
  • Adaptation Learning Mechanism
  • Coast Adapt

Climate Risk Adaptation

Making the proper choice in the order of climate change is a key part of adaptation to climate change, as described by Bo Lim as “doing things differently because of climate change.” Most influence sectors, including agriculture, irrigation, healthcare, wildlife, and transportation, may be grounded in adaptation with the correct plan. Community-based disaster risk management may improve even though it is not possible to completely minimize the effects of climate change.

Adaptation can be initiative-taking, acting in reaction to the effects of climate change, or predictive, starting before the impact of climate change becomes clear. In most cases, predictive adjustments will be less expensive and more successful than reactive adaptations.

Options for adaptation

Divided into grey, green, and soft measures. Grey measures are technical and scientific solutions that increase the flexibility of land, infrastructure, and people. Green measures are based on an ecosystem-based (or nature-based) approach and use the different services given by natural ecosystems to promote resilience and adaptability. Soft options form governmental, social, managerial, and financial approaches that can improve human behavior and governance styles, hence improving adaption ability and raising knowledge about climate change challenges.

Options for adaptation include:

  • Embracing the consequences and damages that come with risks (e.g., managing retreat from sea level rise)
  • Losses can be reduced by transferring or distributing risks (e.g., through insurance)
  • minimizing or ending exposure to climate threats (e.g., building new flood defenses, or changing location or activity)
  • Making use of possibilities (e.g., engaging in current activity, or changing practices to take advantage of changing climatic conditions).
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