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Companies criticized for lack of climate risk reporting

January 17, 2023
 min read

Climate risk is the risk that affects your business caused by climate change. It could be risks that impact your own operations or activities or activities related to your value chain that indirectly impact your business activities. There has been an increased focus on climate risk assessment in the past years, with the WEF Global Risks Report 2022 identifying climate based risks as the most significant risks facing us in the next decade. Climate risk reporting is increasingly becoming included as a requirement in sustainability reporting with the EU taxonomy requiring climate risks assessments as a part of its technical screening criteria, and an increasing focus on the TCFD.

A climate risk assessment (CRA) involves the identification of risks to development activities that are arising because of climate change, and identification of opportunities to address climate change. A climate risk assessment should be performed when investing in a new development, or when upgrading or altering existing assets, operational activities, or processes.

CRAs are important to ensure that climate change does not undermine goals, objectives and outcomes of projects or programmes. A CRA is also important to ensure that projects are not inadvertently increasing risks, vulnerability, or driving maladaptation. This type of assessment is key to ensuring that opportunities to make development climate resilient are identified and exploited where possible, and to make sure that any development is appropriate, viable and sustainable going forwards.

An example of a climate risk assessment and climate adaptation solutions can be seen in Slovakia’s railway modernization project. Here an analysis was carried out using local data on past trends and future projections.  Risks identified included temperature increases, increased variability of climate, and extreme rainfall events leading to a risk of local flooding. Projections and data identified weather extremes as one of the biggest climate risks for the transportation sector and for rail transport in particular, as it has potential to cause damage to the railway infrastructure.

On the basis of the risks assessment, adaptation solutions implemented included technical solutions such as increasing resilience of the railway infrastructure by wind-proofing the catenary system, increasing capacity of the drainage system, increased railway alignment above the limit of potential flooding, reducing slope incline as prevention against landslides, resistant bridge structures and deep bridge pillars, use of highly water resistant building materials for railway subgrade and other components, installation of structural protection systems (e.g. windbreaks, retaining walls, embankments). They also included management solutions to provide solutions when extreme weather events occur and infrastructure disruption takes place. These solutions include increased maintenance and control of sections at risks, e.g. equipping switches, rails and catenaries with detectors monitoring temperature (for overheating and freezing), icing, snow precipitation or wind speed, provision of substitute bus service in the event of temporary interruption of rail transport, ensuring alternative railway routes and efficient emergency transport management.

CRAs play an important role in the EU’s taxonomy rules. For activities to be qualified as green, an analysis should be carried out to ensure that economic activities are appropriate, viable and use opportunities to become more climate resilient where feasible.

A CRA should contain information on:

1.      Climate-related risks to the successful realisation of the project’s intended outputs and outcomes;

2.      Risks that the project will increase the vulnerability of human populations and/or natural systems to climate change and variability;

3.      Risks that the project will contribute to maladaptation; measures to reduce climate-related risks and to adapt to climate change, to be described in a Climate Risk Management Plan (CRMP);

4.      Opportunities for promoting wider resilience and adaptation to climate change and encouraging low-carbon development.

In practice, this requires the acquisition of appropriate, context-based climate projections and data to assess what changes to the climate may occur over the lifetime of the new development. This includes information on current and emerging hazards, emerging trends, extrapolations, and projected changes and climate scenarios based on climate data for the area and industry. Based on the projections, there should be a consideration which climate risks may be material, and a plan should be made with measures to reduce the physical climate risk to the activity.

The EU taxonomy requires that CRAs are carried out at a scale proportionate to the scale of the activity and its expected lifespan. For activities with an expected lifespan of less than 10 years, this means the assessment should be performed by using climate projections at the smallest appropriate scale. For other activities with a greater lifetime, the assessment should be performed using the “highest available resolution, state-of-the-art climate projections” across the existing range of future scenarios consistent with the “expected lifetime of the activity, including, at least, 10 to 30 year climate projections scenarios for major investments”.

The taxonomy also requires that climate projections and assessment of impacts are based on best practice and available guidance, taking into account the state-of-the-art science for vulnerability and risk analysis and related methodologies in line with the most recent Intergovernmental Panel on Climate Change reports, scientific peer-reviewed publications, and open source or paying models.

Measures implemented should not negatively affect the level of resilience to climate risks of other people, nature or businesses and should be in line with local, sectoral, regional and national adaptation measures.

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