The Basics of Climate Change Risk Assessment

Over the recent Christmas holidays there was the inevitable question of ‘tell me more about your job?’. When you work in climate risk you sometimes need to go back to the basics and explain things in simple terms. Here’s our attempt to cover some of the basics for the next time you need it.  

Climate risk refers to the adverse impacts of climate change on the environment, organisations, and society. There are two main types of physical risk: 

• Acute: Risks that are driven by specific weather events or hazards such as floods, storms, and wildfires 
• Chronic: Risks that are driven by longer-term shifts in climate patterns such as rising sea levels and increasing mean temperatures  

Ultimately, climate risk refers to the increased frequency and severity of extreme events due to the impact of climate change. 

Costs of Climate Change Risk 

A Deloitte analysis estimated unchecked climate change could cause economic losses of $178 trillion between 2021 and 2070 (Deloitte, 2022). Understanding and mitigating climate risk is an effective way to reduce the economic losses and minimise disruption.  

Future climate projections for risk assessments 

Most climate models use SSPs (Shared Socioeconomic Pathways) to make predictions regarding future climate scenarios. The SSPs reflect five different scenarios that describe broad socioeconomic trends that are intended to span the range of plausible futures. These are: 

• SSP1: ‘A low carbon future: we get our act together and hit net zero’ (there are low systemic challenges to organisations to mitigation and adaptation)  
• SSP2: ‘Middle of the road: the world follows historical patterns with unequal progress (there are medium systemic challenges to mitigation and adaptation)  
• SSP3: ‘Regional rivalry: increasing nationalism and focus on national/regional issues at the expense of global progress (there are high systemic challenges to mitigation and adaptation)  
• SSP4: ‘Inequality: highly unequal global investment leads to significant gap between high- and low-income areas’ (there are low systemic challenges to mitigation and high systemic challenges to adaptation) 
• SSP5: ‘Significant fossil-fuelled growth: significant temperature and CO2 rises’ (high challenges to mitigation, low challenges to adaptation)  

It is important to analyse a range of future scenarios as it helps you more effectively mitigate and adapt to future climate risk. The aim is to be resilient regardless of which possible future occurs. Currently SSP2 is likely the best descriptor of projected current progress, although recent geopolitical tensions might mean that this shifts to SSP3. 

Building climate resilience starts with a climate dataset and a risk assessment   

Understanding your climate risk is key to comply with regulatory requirements and will further enable you to make informed decisions regarding future investments. Organisations need to plan for and take action against the locked in effects of climate change to build resilience. The long-term costs of inaction could well outweigh any short-term costs. The first step is analysing climate data to understand what actions to prioritise.