From climate change to climate risk assessment
The severity and irreversible pace of some trends of climate change has been unveiled in first place by the 2021 IPCC and later confirmed during COP 26 Glasgow Climate Pact, which highlighted how climate adaptation will lead the conversation in years to follow. Climate change will challenge people, institutions and businesses in designing strategies to adapt to extreme weather and other effects caused by human activities interference with major natural cycles.
Global warming and climate change are redefining natural landscapes and resources, together with disrupting the geopolitical and productive scenarios where businesses operate. It is becoming increasingly vital for companies to orient themselves into the complexity of climate impacts on their activities, assets and value chain.
Climate risk assessment enables companies to incorporate these elements into their financial risk management and define adaptation strategies to mitigate their impacts and ultimately identify innovation opportunities and transitioning into more sustainable business models.
Climate risks for businesses can be divided into two main categories:
- Internal climate risk, or value chain risk, it can be further divided into physical risks affecting production infrastructures (such as a facility on the shore that might be flooded by sea level rise), supply chain risks or operational risks that affect prices volatility and resources availability (such as a crop scarcity due to an intense draught) or market risks which include consumer, user or customer behavioural change due to climate change (such as a skiing resort in an area with no long seasonal snow)
- External climate risk, or transition risk, it is connected to the changing landscape where the company operates during the transition towards a net zero economy and can include other risks such as reputational risk related to the the company climate strategy and commitment, or such as financial rating risk that considers the access to new capitals which climate finance will offer to carbon neutral companies and deny to more carbon intensive businesses, last but not least is climate compliance risk which relates to the ability of the company to fulfill refined carbon management legal and sector requirements.
A deep understanding of the climate risks and their impacts is key for tomorrow’s business resilience. The financial evaluation of the operational, commercial and regulatory costs of climate change impacts enable companies to define successful climate strategies and help them thrive into a challenging future.
Climate adaptation strategies for resilient companies
Because inaction can’t surely be a risk management strategy, the step following a climate risk assessment needs to be the evaluation of climate adaptation and mitigation strategies to reduce the costs of the climate change negative effects on business operations and assets, potentially seizing the opportunities of the low carbon economy transition.
Adaptation and mitigation strategies depend on the severity of the identified climate risks. Physical risks can be managed by new infrastructure investments designed to protect assets and operations against extreme weather. New responsible consumption trends will require eco design investments or circular strategies to ensure a competitive positioning to products and services. Geopolitical disruption on a global supply chain will call for a redefinition of procurement strategies or the design of a reverse supply chain in order to maximise resources efficiency.
A balanced and comprehensive adaptation strategy can be financially sustainable with a rigorous mix of resources and cost efficiency, climate finance access requirements fulfillment and innovative business models to generate extra revenue streams maximizing the effectiveness of available assets.
Accurate climate risk assessment and solid adaptation strategies with NUVA
NUVA supports innovative businesses through climate risk assessment and management and helps them define the optimal climate adaptation strategies. The approach to strategy design aims to integrate strategic with operational innovation, to ensure the achievement of the main business goals in changing landscape. A deep focus is dedicated to building a sustainable financial plan which weights existing resources and available climate finance opportunities.
NUVA climate adaptation strategies unfold over three main phases:
- A climate risk assessment is performed through a climate risk and disaster assessment tool that considers value chain and transition risks, their severity and chance of occurrence according to sector, geographical and regulatory specificities and finally quantifies the risks into financials.
- A risk mitigation strategy is defined after identifying the return on the investments needed compared to the risks cost acceptance.
- A balanced funding strategy is designed combining resources optimization, access to climate finance and identifying new revenue streams.
NUVA further empowers climate adaptation and mitigation strategies, offering an integrated range of other advisory services regarding carbon management and business transition towards the net zero and circular economy.