A Handbook on Climate Risk: Assessing, Controlling, and Communicating with Expertise

Let’s be honest: climate change is not a hypothetical problem for the future. It is currently taking place and has daily effects on economies, communities, and companies. Managing climate risk is more than simply a "nice-to-have" competence if you work in sustainability, finance, or ESG. It is necessary.

However, where do you even begin? The three main components of addressing climate risk are reporting, managing, and measuring. Together, let's dissect these actions so you can see how they contribute to creating a more sustainable future.

First Step: Assessing Climate Risk

The problem is that without initially measuring something, you cannot manage it. There are two main components to climate risk:

1. Physical Risk: Consider rising sea levels, hurricanes, wildfires, and floods. These events can significantly impact communities, infrastructure, and supply networks.
   
   
2. Transition Risk: This refers to the potential effects on your company of moving toward a low-carbon economy. For instance, new rules, shifting consumer demands, or even reputational dangers if you fall behind.

You must examine your Scope 1, 2, and 3 emissions to quantify these risks:

• Scope 1: Direct emissions from entities under your control, such as factories or corporate vehicles.
  
  
• Scope 2: Emissions resulting from purchasing energy, such as electricity.
  
  
• Scope 3: The challenging one—emissions from the supply chain and products.

Scope 3 emissions are commonly disregarded but have a significant impact; think of them as that extra-large cappuccino you forgot to include in your monthly budget.

You can calculate and analyze these emissions more efficiently by using resources like the Task Force on Climate-relatedFinancial Disclosures (TCFD) or GHG accounting frameworks.

Step 2: Climate Risk Management

It's time to act once you have control over the data. The key to managing climate risk is transforming insights into practical plans.

How This Appears in Real Life:

• Transition Planning: Make a plan to cut emissions and reach net zero goals. This is not merely a checkbox; it’s a method of future-proofing your company.
• Analyzing Scenarios: Use climate models to prepare for different futures, such as more frequent extreme weather or stricter carbon limits.
• Risk Assessment for Nature and Climate: Examine how ecosystem threats, such as deforestation or water scarcity, might impact your company.

Here’s a brief illustration: A manufacturing company forecasted heatwave-related supply chain disruptions using climate modeling. By identifying substitute suppliers and modifying production schedules, they prevented millions of dollars in potential losses.

Step 3: Climate Risk Reporting

The last step is to share your progress. Transparency is more important than compliance when it comes to reporting. Done correctly, it fosters trust among consumers, workers, and investors.

Important Reporting Structures:

• TCFD Reporting: Provides a standardized method for disclosing climate-related risks and opportunities.
• CDP Reporting: Focuses on environmental impacts in areas such as forests, water, and climate.
• GRI Standards: Offers guidelines for comprehensive sustainability reporting, including climate risk.

Imagine you’re an investor examining two businesses. One freely discusses its approach to climate risks and opportunities, while the other remains silent. Who do you think you’d trust more? Exactly.

Why Everything Is Important

Managing climate risk isn’t just good for the environment—it’s smart business. Here’s why:

• Resilience: Businesses prepared for setbacks recover more quickly.
• Reputation: Customers, investors, and employees are drawn to companies that lead in sustainability.
• Opportunities: Addressing climate issues often uncovers new partnerships, markets, or cost-saving measures.
  
  

Where to Begin

Feeling motivated? Great. But let’s be honest—this can feel overwhelming. That’s why having the right resources and training is crucial.

An excellent starting point is the Sustainability & Climate Risk (SCR®) Certificate Masterclass by Impact Maker. It covers everything from carbon reporting and transition planning to emissions under Scope 1, 2, and 3. Additionally, you’ll gain knowledge through practical activities, case studies, and professional advice.

The earlier you begin, the greater the impact you can make.

Concluding Remarks

Managing climate risk isn’t just about safeguarding your financial interests—it’s about creating a better future for everyone. Effective measurement, management, and reporting don’t just help you tackle today’s challenges; they prepare you for tomorrow’s opportunities.

Make the initial move. Equip yourself with the resources and knowledge you need to truly make an impact.

One step at a time, let’s construct that future together.