Climate risk

“Climate risk is not the weather event alone. It is what the event meets when it arrives. ”

Climate risk is often reduced to a list of hazards: drought, flood, heat, storms or sea-level rise. The IPCC frames risk more broadly through the interaction of hazards with exposure and vulnerability. The same drought can produce very different consequences depending on water storage, crop diversity, income, institutions and access to finance. Business frameworks commonly distinguish physical and transition risks.

Physical risks arise from climate hazards and long-term changes. Transition risks arise from policy, technology, markets, litigation and reputation as economies move toward lower emissions. These categories can interact: delayed transition increases future physical risk, while abrupt policy can increase transition disruption. Risk analysis is forward-looking and uncertain.

Historical averages are increasingly poor guides where climate conditions are changing.

Scenario analysis helps explore plausible futures but does not produce one forecast. Results depend on time horizon, warming pathway, asset location and assumptions about adaptation. Organisations can also affect the risk they assess. Purchasing practices may increase supplier vulnerability; land conversion can intensify local heat or flood exposure; adaptation measures can transfer risk to neighbouring communities.

A risk register focused only on consequences to the company misses impacts the company causes or contributes to. For agricultural supply chains, climate risk is spatial and social. Farm coordinates, crop suitability and hazard models matter, but so do tenure, debt, labour, market access and public services. Resilience cannot be inferred from exposure maps alone. The discipline is to connect analysis to decisions.

A sophisticated scenario report that does not change capital allocation, sourcing or contingency plans is disclosure without risk management.

Practical application

Assess hazard, exposure and vulnerability across multiple time horizons and scenarios. Include dependencies and impacts on affected people, not only asset values. Assign owners, thresholds, adaptation actions and review dates to material risks.

Why it matters

Climate risk can alter asset values, supply continuity, health and livelihoods. Treating it as a disclosure topic rather than a decision process delays action and increases loss.

Common misconception

A climate-risk score predicts what will happen. It is a decision aid built from scenarios, data and assumptions; uncertainty should remain visible.

Connections

Physical Risk and Transition Risk separate major channels. Climate Scenario Analysis explores futures. Climate Resilience addresses capacity to cope and recover.

A question worth asking

Which business decision changed because your climate-risk assessment identified a different future—not merely a different score?

Selected references

IPCC, Sixth Assessment Report, risk framework. IFRS Foundation, IFRS S2 Climate-related Disclosures. Task Force on Climate-related Financial Disclosures, recommendations and guidance.

How it is used

Governments, companies, investors and technical teams use “Climate risk” in climate strategies, transition plans, emissions inventories, scenarios and investment decisions. In each case, the user should state the relevant methodology, emissions boundary, baseline, timeframe and underlying data; otherwise, the same term may be applied to materially different situations.

In this context, it refers to the potential for adverse consequences arising from the interaction of climate-related hazards, exposure, vulnerability and responses to climate change.