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The Environment and Climate Change risk assessment process

According to the World Economic Forum, which compiles the annual Global Risks Report, Environment and Climate Change risks are the ones that appear in the first positions, but also with the most complex correlations between them, according to the likelihood of occurrence (Likelihood) and the severity of the impact they will have (Impact) at the level of societies and businesses.

In addition to the above approaches, there is of course an interest in more "tangible" and more widely communicable information, which so far we are used to see in Corporate Social Responsibility Reports or ESG reports. These, too, are areas of interest and reporting.

The risk assessment process follows the basic principles of risk assessment and is usually carried out using widely accepted techniques for identifying operational risks. This involves identifying the likelihood of an organisation's activities causing damage to the environment or contributing to the phenomenon of Climate Change and determining their impact. Consequences are assessed in either economic or technical terms and relate both to the impact of each risk on the environment and the impact of each risk on the organisation itself.

Environment and Climate Change risks are the ones that appear in the top positions, but also with the most complex interrelationships between them. [Source: World Economic Forum, Global Risks Report 2020]

With regard to Climate Change risks, a similar logic is followed to assess the risks that Climate Change may bring to an organization's activity. The broad categories of risks in this case are 'natural risks' and 'transition risks'.

Natural hazards refer to negative consequences due to changes in weather conditions, the occurrence of extreme weather events, chronic changes in the geomorphology of the surrounding area where a business operates and so on.

Transitional risks are the indirect impacts of Climate Change on business activity. For example, the need to transition to cleaner/greener technologies, greater public awareness of environmental issues, changes in legislation on emissions of pollutants through the imposition of fines and limits, the imposition of the 'Carbon tax' are among other areas that may create financial risks for an organisation.

However, it is worth noting here that Climate Change, apart from the risks it poses, can also bring about positive changes in the way businesses operate and create opportunities. For example, the melting of ice on land and sea can be an opportunity for international shipping because it will create new sea routes that were previously unavailable, and for agriculture because it increases the area of arable land. The expanded use of the Arctic Ocean for shipping from China to Europe and North America, as a compensation for the already known routes through the Suez Canal [1], and the use of Siberia for agriculture [2], is already becoming apparent. In addition, warming in some parts of the world may also lead to an increase in demand for certain products and services (e.g. air conditioning).

The findings of the risk assessment are often information reported in the annual reports and accounts of companies in the context of the disclosure of financial and non-financial information. In general, there is increasing interest from financial institutions, investors, customers and other stakeholders in presenting environmental and climate change risks and opportunities as evidence of corporate social responsibility and sustainability of a company's operations.

RiskClima guides you through the steps to be followed for assessing Environment and Climate Change risks (and opportunities):​

  • identification of potential activities along your value chain that may cause damage to the Environment or that may be directly or indirectly affected by Climate Change

  • assessment of the damage they may cause

  • identification of the likelihood of risks occurring

  • identification of actions to mitigate such risks

  • recording the results of the assessment

  • use of performance indicators, metrics and other elements to monitor the evolution of the risk

  • review of the evaluation at regular intervals


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