The Two Types of Climate Risks for an Organization

Do you know the two types of climate risks a business faces?

To set up a climate strategy effective, the Carbone 4 Academy helps you understand the two climate-related risks your organization faces:

Physical Risks

They concern the direct and tangible consequences of climate change.

These are the risks which are the easiest to understand, since they are the ones that have the most direct impact on our lives.

There are two important factors to consider when assessing the impact of physical risks:

• the frequency
• the intensity

The more frequently a weather-related hazard occurs over time, the greater the company’s exposure to physical risk will be.

At the same time, regardless of the event, the upward trend over time in the financial impact of climate-related hazards also serves as an important metric for assessing an organization’s exposure to physical risks.

In the medium term, as the intensity and frequency of climate-related hazards increase for a company—and as it becomes exposed to and vulnerable to climate risks—provisions will need to be made for maintenance and upkeep costs in order to maintain the efficiency of the value chain.

Recurring damage caused by rising sea levels, heat waves, and droughts will force companies to raise capital to maintain their operations, despite the increase in climate-related risks.

It is therefore important to take physical risks into account in order to develop an optimal climate strategy.

Transition Risks

They focus on the financial implications for businesses of the economy's transition to a low-carbon world.

In order to comply with the Paris Agreement, organizations must effectively reduce their greenhouse gas emissions.

As a result of this reduction, their original business model is being called into question, placing the decarbonization of their value chain at the center of their strategy.

However, the major adjustment required by this transition is not without consequences, given the company’s initial business model, which was based on short-term financial profitability.

In France, the National Low-Carbon Strategy provides organizations with a roadmap for reducing their greenhouse gas emissions, broken down by sector.

Carbon neutrality goals are therefore part of a sector-based approach to the French economy in which all stakeholders are subject to the same objectives.

The company will therefore need to comply with current regulations while committing to reducing its carbon footprint.

By anticipating the potential financial costs associated with exposure to and vulnerability to climate risks, the company is positioning itself to develop a climate-resilient and realistic long-term strategy.

To learn how to implement a climate strategy within your organization, check out the training courses offered by the Carbone 4 Academy, and sign up.

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