Climate and Industrial Risks

The Climate Change Effect

Our planet's climate is changing. These changes are happening slowly, often unnoticed. But as they accumulate, they lead to an increase in the frequency of extreme events. Such events are increasingly observed across the planet. They directly or indirectly impact the operations of virtually all businesses. Here you can see how various climate indicators have changed in the past (using Russia as an example) and how they will change in the future (using the Netherlands as an example) – from simple things like average temperature to more complex ones such as agronomic indices, heat and cold waves, and more.

Global warming is already producing many physical impacts, and they are expected to get worse. Examples are more frequent and intense heatwaves, more extensive wildfires, more droughts and also more extremely heavy rainfall, reductions in Arctic sea ice, snow cover and permafrost.

These physical impacts from climate change will feed through to an economy in a variety of ways, including damages to physical assets through extreme weather, reduced productivity (particularly in agriculture), heat-related illnesses and death, and loss of biodiversity. We can also expect supply chain disruption to become more routine, with damages to the physical infrastructure and possibly impacts on financial stability if the disruption is large enough.

All these events are not abstract, they are directly translated to your business.

Your company may not yet feel threatened, but if you're building a strategic development plan, you're forced to consider climate change. For one thing, insurance companies are taking it into account: insurance rates for vehicles, industrial facilities, and employee lives are rising.

How to calculate all the climate risks that pose a threat to your business?

There are several frameworks used by consultants for this purpose. The foundation of each framework is an understanding of risk.

Risk definition

Risk is usually defined as a chance of something happening that will have an impact on the business as usual. Iа it occurs, it can have positive or negative effect on the set of business outcomes. Industry risks are generally comprised of three core components:

  • Hazard [Cause] (the potential source of harm),
  • Exposure [Event] (the presence of people, assets, or systems in the hazard zone), 
  • Vulnerability [Effect, consequences] (susceptibility to damage or loss when the hazard strikes).
These foundational elements can be broken down to evaluate threats effectively.

Hazard

The inherent danger or event with the potential to cause harm. When we think about climate related risks, then the hazard, or cause is on the first place. 
  • Examples: Physical threats (fires, toxic leaks), heat waves, or sea level rise.
  • Context: Hazards exist naturally or as a byproduct of operations but require proximity to cause damage.

We usually are unable to influence such hazards - they are uncontrollable external risks. This is why it is so important to be prepared to them. However, hazard becomes a risk only in case if you business can be exposed and this can bring some materialized loss.

Exposure

The extent to which your business is in the path of the hazard. Usually, when we talk about risk, we mean a negative event. However, it is just one of the components. A risk event is a situation or incident that occurs in a particular location during a particular interval of time.
  • Examples: Facilities located in flood zones, reliance on global supply chains, or employee presence in high-risk manufacturing areas.
  • Context: High exposure means a larger number of your assets or operations are subject to loss should an event occur. 

Events can cause other events creating the event chain. For example, long heavy rain is a dangerous event itself, however it frequently causes flood, that brings different exposure.

Vulnerability

Vulnerability refers to a propensity to be adversely affected by a particular risk driver. For a physical asset, vulnerability will depend on the way that it has been built, for example, the material used, its elevation and any adaptation undertaken (such as insulation, water pumps or air conditioning). Two properties located on the same road may have very different vulnerabilities simply because of the way they have been constructed or adapted. The vulnerability can be measured in terms of recovery time, financial cost, physical injury, damage to property, reputation, etc. 
  • Examples: Outdated security infrastructure, lack of insurance coverage, or lack of emergency response protocols.
  • Context: A highly vulnerable asset will suffer extensive damage from a minor hazard, whereas a fortified asset can withstand the same event. 

Types of hazards

To assess climate change hazards, industries break them down into three specific scopes: Physical Acute (extreme events), Physical Chronic (long-term shifts), and Transition hazards (regulatory and market shifts).

These three areas represent the full spectrum of climate-driven threats to business operations.

Acute Physical Hazards

Event-driven, severe weather phenomena that cause immediate disruption.
  • Examples: Floods, wildfires, hurricanes, severe storms, and heatwaves. We estimate more than 150 extreme climate features based on in sito, reanalysis, satellite and model data.
  • Impact: Immediate property damage, asset destruction, and sudden supply chain halts. 

Chronic Physical Hazards

Long-term, gradual shifts in climate patterns that permanently alter operating environments. 
  • Examples: Rising sea levels, sustained temperature increases, and permanent droughts. We compute and take in account more than 30 various climate metrics.
  • Impact: Decreased agricultural yield, higher cooling costs, and permanent loss of coastal land. 

Transition Hazards

These hazards result from the regulatory, technology, or market changes made to mitigate or adapt to climate change. Examples include new reporting requirements, changing demand for services, and reputational risk from not contributing to a low-carbon economy. 
  • Examples: Carbon taxes, stricter emission laws, changing consumer preferences, and obsolete technology. 
  • Impact: High compliance costs, stranded assets, and rapid devaluation of non-sustainable products. 

We are the professionals in the climate hazards

We made deep research for several mining corporations at the locations of their presence. We have professional climatologists in our team including the Doctor of Environmental Science. 

Many reporting frameworks and standards offer risk assessment guidance, such as TCFD, Carbon Disclosure Project (CDP), or ISO 14091. Companies can choose depending on their reporting standard of choice – read more about selecting the right reporting standard here.

We don't offer you another one report on climate hazards in this changing world. Instead, we analyse your company assets, your industry and supply chain - and compile hyper-localized report with multiple measures calculated exclusively for your business. 

The most popular methodology for climate risk analysis is the LEAP approach. LEAP is designed to be used by an internal project team within your organization and involves four phases:
  • Locate your interface with nature;
  • Evaluate your dependencies and impacts on nature;
  • Assess your nature-related risks and opportunities;
    and
  • Prepare to respond to, and report on, material nature-related issues, aligned with recommended disclosures.
 
Our AI specialists have created several AI-agents that compile a basic reporting without the involvement of client specialists. Example 1, Example 2.

Of course, to fully analyse risks, our consultants need an understanding of your company's value chain and business processes. Only through close collaboration with SMEs can we achieve a good risk assessment.

Be ready

Order report and identify the highly likely to occur risks. Act now: first, you can insure your property, then you can develop recovery plan, and later do some other actions.