Factsheet
Climate-related
Risks and
Opportunities
Contents
Introduction 02
What are climate-related risks? 04
What are climate-related opportunities? 06
Why consider climate-related risks? 07
A range of plausible futures 08
Assessing climate-related risks and opportunities 09
Key steps in a Climate Scenario Analysis 11
EcoAct's proprietary tools 12
Your journey towards resilience: What next? 14
Introduction
We are already experiencing the impacts of climate change and in the absence of
sufficient action, these impacts will continue to accelerate.
Every increment of warming will intensify extreme weather events, change climate patterns and intensify climate impacts on organisations.
Alongside these physical impacts, organisations are also likely to face increasingly stringent climate policies, alongside other regulatory, legal,
market and technological changes. Limiting global warming to 1.5°C is essential to avoid the most catastrophic impacts of climate change, yet
this is becoming progressively more challenging. The need for businesses to identify, assess and adapt to vulnerabilities in response to climate
change is becoming increasingly important.
Climate scenario analysis (CSA) is an essential step in understanding the actions organisations should take. CSA is recommended by climate-
related disclosure frameworks (e.g., the Taskforce on Climate-Related Financial Disclosures (TCFD), the Corporate Sustainability Reporting
Directive (CSRD), and the International Financial Reporting Standards (IFRS) S2), as a key analysis for all organisations to understand the
relevant risks and opportunities they face due to climate change. CSA enables critical strategic thinking on climate-related issues as it involves
the analysis of plausible futures and their potential impacts on an organisation.
Alongside other climate-related activities (e.g., defining metrics and targets to monitor climate-related risks and opportunities, and suitable
climate-related risk governance), CSA can support decision-making for enhanced resilience to future climate conditions. It is a fundamental
part of building a credible climate transition plan.
3
What are climate-related risks?
4
What are climate-related risks?
Climate-related risk refers to the potential negative impacts of climate change on an
organisation. It arises through a combination of exposure (associated with the climate
hazard/driver) and vulnerability (how prepared an organisation is to cope).
Climate-related risks are typically grouped into two main categories: physical and transition risks.
Physical risks are associated with the impacts from physical climate hazards. They can be event-driven (acute) such as
increased severity of extreme weather events (e.g., cyclones, droughts, floods, and fires) or relate to longer-term shifts
(chronic) in climate conditions (e.g., sustained increased temperatures and sea level rise). Physical risks have financial
implications either directly (e.g., through damage to assets) or indirectly (through supply chain disruption).
Transition risks are associated with the changes required to transition to a lower-carbon economy. They reflect impacts
relating to various drivers including policy and legal actions (e.g., climate litigation or changes in regulation), technology
changes (e.g., development and use of emerging renewable energy technology), market responses (e.g., shifts in
supply and demand for commodities), and reputational considerations (e.g., customer perceptions of an organisation’s
contribution to mitigating climate change).
Exposure
Physical
How climate
Transition
How climate Vulnerability
Climate Risk hazards are
expected to
drivers are
expected to
How prepared an
change under change under organisation / asset is
different different to cope with climate
scenarios scenarios drivers
5
What are climate-related opportunities?
Climate change can also present a range of opportunities. These can
arise through actions and efforts to manage, mitigate and adapt to
potential changes and climate-related risks and can have financial
benefits for organisations.
As categorised by the TCFD, opportunities could arise in several areas:
Resource efficiency
Reducing operating costs through efficiency improvements can result in direct cost savings
over the medium- to long-term whilst also potentially reducing emissions.
Energy source
Companies will need to transition their energy generation to low emission alternatives.
Those that shift their energy usage, particularly those that shift early, towards these sources
could reduce their annual energy costs.
Products and services
Organisations innovating and developing new low-emission products and services can
improve their competitive position and capitalize on shifting consumer preferences.
Markets
Organisations may be able to diversify their activities and seek opportunities in new
markets which could enhance their position in the transition to a lower-carbon economy.
Resilience
Organisations that respond to and manage climate-related physical and transition risks will
enhance their resilience.
The potential opportunities provide an additional driver for organisations
to identify, assess and manage climate-related impacts.
Why consider climate-related risks?
Regulation Impacts
Climate-related Lack of planning
regulation is could result in
increasingly serious impacts
prominent globally. including downtime,
To comply with financial losses,
Understand relevant reporting Stakeholders and supply Resilience
requirements chain disruption.
The latest climate and frameworks Investors are Conversely The future impacts
science highlights and avoid legal increasingly asking actions to address of climate change
that climate change implications, climate- companies about climate-related are uncertain.
is a real and related impacts the steps they are impacts present Assessing
present issue. Each must be considered taking to mitigate opportunities multiple scenarios
organisation will and disclosed. and manage their in terms of encourages better
experience unique climate-related competitiveness, understanding
impacts that will be risks. Consumer resilience, and and management.
exacerbated with and producer potential cost Alongside other
continued warming preferences are savings. relevant actions,
and regulation. CSA also changing to this enables
will identify the most reflect climate- organisations to
material risks and related mindsets. enhance their
opportunities for Companies need resilience to an
your organisation. to keep pace with uncertain future
these shifts. climate landscape
through adaptation
and transition
planning.
7
A range of plausible futures
A wide range of futures are plausible and a range of scenarios have been defined to account for this. The scenarios are not assigned a likelihood and
therefore it is essential to assess at least two scenarios to account for this uncertainty. The selected scenarios should be contrasting (e.g., a low carbon and
a high carbon scenario1) as physical and transition risks will have greater impacts at opposite ends of the spectrum. It is also important for organisations to
understand and be prepared for the implications of varying scenarios within the context of their operations.
Low Carbon High Carbon
~1.4 oC ~3.0 oC
More transition risks More physical risks
Net-zero 2050 Current policies
An ambitious transition across Current climate policies are
all sectors. Transition risks will not sufficient to achieve
result from higher costs of official commitments made
carbon, new stringent policies by countries. Physical risks
and regulations, and changes considerably increase
in business and consumer leading to large impacts on
preferences. The increase in the economy, society and
physical risks would be reduced. environment.
Widely used scenarios
• The IPCC define Representative Concentration Pathways (RCPs) and Shared Socio-economic Pathways (SSPs). RCPs summarise different
projections of emissions and radiative forcing trajectories leading to a range of warming levels. SSPs describe alternative social and economic
pathways which underpin changes in emissions described by the RCPs. When combined, these scenarios provide a framework for assessing future
impacts. Widely used scenarios include SSP1-2.6 – Sustainable Development Scenario and SSP5-8.5 – Fossil-fuel-driven development scenario.
• International Energy Agency (IEA) World Energy Outlook scenarios. The IEA has defined a range of potential future scenarios including Net Zero
Emissions by 2050 Scenario (NZE), Announced Pledges Scenario (APS), and Stated Policies Scenarios (STEPS).
• Network for Greening the Financial System (NGFS). Seven scenarios are defined which describe a range of different futures (delayed transition,
fragmented world, net zero 2050, below 2°C, low demand, Nationally Determined Contributions, and current policies). These sit within four quadrants
describing future global conditions: orderly, disorderly, hot house world and too little too late.
1. [Link]
8
Assessing climate-related risks and opportunities
9
Assessing climate-related risks and opportunities
Hazards and Exposure Vulnerability Climate Risk Resilience
Adaptation and Transition
Climate Drivers Planning
Understand the Understand the Combine exposure CSA results can
Identification of support informed
relevant climate exposure of the vulnerability of an and vulnerability
organisation to the organisation to the considerations to decision-making when
hazards and/or drivers identifying appropriate
for relevant physical identified hazards identified hazards understand potential
and drivers under and drivers through climate-related risks. adaptation and
and transition risks. transition planning
current and future time considerations of
periods. criticality, sensitivity Determine potential actions.
This is dependent
on the organisation’s and adaptive capacity. financial implications
Understand how associated with the Best practice guidance
activities, location(s) can be provided to
and supply chain(s) as exposure changes hazards and drivers.*
under (at least) two support ongoing
well as the strategic risk and opportunity
direction of the plausible scenarios
to then determine identification and
organisation. management.
how the hazards and
drivers may impact
an organisation in the
future.
Initial assessment Exposure is described in Stakeholder workshops Categorisation of risk Identification of next
a narrative form based to gather insight on and identification of most steps and understanding
on scenario and climate organisation’s context material risks. risk and potential risk
model information. and sector level review. reduction measures.
Deep-dive assessment Quantification using Tailored vulnerability Quantification of risk Development and
EcoAct's tools and/or questionnaires and and, where feasible, implementation of an
a tailored approach to interviews. Consideration estimation of financial adaptation and transition
meet each organisation's of potential financial impact. plan.
needs. impacts.
* The ISSB standards (IFRS S2) explicitly state that organisations are required to disclose and quantify how climate-related impacts could affect their financial position (e.g. access to finance, cost of capital) over the short-,
medium-, or long-term. 10
Key steps in a Climate Scenario Analysis
Maturity in understanding climate-related risks and opportunities
Steps in initial (qualitative) CSA Steps in deep-dive (quantitative) CSA
Problem definition Problem definition
Define the focal question, boundaries and drivers. Define the focal question, boundaries, and drivers for selected
risks.
Assess climate risks and opportunities Exposure
Upskill key stakeholders on the CSA process and identify Leverage publicly available and at cost datasets using EcoAct’s
strategic and operational business drivers. proprietary tools (see page 10) to quantify the trends in key
variables and metrics.
Develop qualitative scenario narratives and a detailed
database which includes all relevant risks & opportunities over
the time horizons and climate scenarios.
Vulnerability
Identify risk specific metrics to assess the different components
of vulnerability, gather company specific characteristics through
internal stakeholder engagement.
Risk and opportunity prioritisation
Understand the materiality of identified risks for the business.
Risk and Impact
Determine risk by combining exposure and vulnerability
assessment results and determine financial impacts.
Outputs and next steps
First disclosure of risk and opportunities Outputs and next steps
1. Deep dive Climate Scenario Analysis Mature disclosure of risk and opportunities
2. Initial consideration of resilience and risk reduction measures
1. Integration of climate-related risk management into enterprise risk
management
2. Development and implementation of adaptation and transition plans
to enhance resilience
11
EcoAct's proprietary tools
12
EcoAct's proprietary tools
EcoAct's Climate Risk Platform (ECLR)
• E
CLR is a unique platform which allows users to visualise and understand the extent to
which sites are exposed to a range of climate hazards (aligned with those included in the EU
Taxonomy).
• Climate projections can be assessed at sites around the globe.
• ECLR is based on our experience in more than 120+ climate risk projects.
• It is aligned with regulation: the Climate Reporting section simplifies reporting to EU
Taxonomy (Adaptation Pillar) and CSRD (financial metrics).
• ECLR uses the CORDEX regional climate models with up to 12 km resolution based on IPCC
scenarios, along with best-in-class complementary datasets.
• Learn more about EcoAct's Climate Risk Platform here.
Carbon and Energy Pricing Tool
• The EcoAct Carbon and Energy Pricing Tool supports the analysis of the potential financial
impacts resulting from the implementation of a low-carbon economic model.
• It can support you to anticipate future additional costs related to carbon and energy prices
through scenario-based impact studies.
• Modelling can be undertaken at a country and sector level based on three scenarios of
energy and carbon price developments up to 2050.
• The tool allows the most exposed service lines and products requiring immediate action to
be identified efficiently.
• It can facilitate the development of business model transformation strategies and evaluate
the financial impacts of transformation and decarbonisation actions.
• Learn more about EcoAct's Carbon and Energy Pricing Tool here.
13
Your journey towards resilience: What next?
Understanding climate risk will allow your organisation to take steps to enhance
resilience and identify additional action that may be required. However, further
work should be undertaken to enhance resilience more broadly in relation to
climate action and climate-related impacts. Examples of some of the relevant steps
to enhance resilience are included below.
Planning Feasibility assessments
Once risks and opportunities are well understood, The development and implementation of actions
adaptation planning and transition risk management to reduce risks needs to be backed by a robust
should be undertaken to manage and mitigate assessment of feasibility and consideration of
risks and harness climate opportunities. This different scenarios and dependencies.
should incorporate the analysis and adjustment of
governance structures to embed resilience. We have developed our own Carbon Reduction
and Feasibility Tool (CRaFT) to support with this
Climate transition planning is a key strategic enabler assessment process. CRaFT can help you map
and investor communication tool for businesses to a successful pathway to your climate ambitions
evidence how they will achieve emission reduction and help you understand the trigger points and
targets and build climate resilience. dependencies of your strategy and identify where it
may need to be updated to be effective and viable.
Target setting
Reporting
The development of robust metrics and targets
related to material climate risks and opportunities Sustainability reporting is crucial for organisations as
is key to monitoring action to reduce risk to an it enhances reputation and trust by demonstrating
acceptable level. responsible practices.
Developing ambitious and meaningful carbon Sustainability reporting also attracts ESG-focused
emission reduction targets, such as science-based investors and helps manage risks, ensures
targets, is already a pivotal part of a corporate regulatory compliance, and fosters innovation and
climate strategy and transition planning. Setting efficiency through ESG performance tracking.
targets and developing KPIs to support climate
adaptation and mitigation activities is also coming in
to focus.
14
Factsheet
Climate action.
Commercial sense.
Together with our clients, we act to put climate and nature centre stage to drive sustainable
corporate transformation within planetary boundaries.
EcoAct is an international sustainability consultancy and project developer with 18+ years
of industry experience and 360+ climate experts globally. Founded in France in 2006, the
company now spans three continents with offices in Paris, London, Barcelona, New York,
Montreal, Munich, Milan and Kenya.
EcoAct's core purpose is to lead the way in developing sustainable business solutions that
deliver true value for both climate and client. Data is the cornerstone of our consulting practice,
supported by our dedicated Climate Data Analytics and Research & Innovation teams.
At EcoAct we are driven by a shared purpose to make a difference. To help businesses
implement positive change in response to climate and environmental sustainability challenges,
whilst also driving commercial performance.
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