Climate risk assessment: A practical framework for non-financial enterprises

The regulatory landscape for climate risk management is rapidly evolving, driven by international agreements like the Paris Climate Agreement and initiatives such as the European Green Deal. Key regulations, including the EU Taxonomy and the Corporate Sustainability Reporting Directive (CSRD), mandate comprehensive sustainability reporting and emphasise the importance of integrating climate risks into corporate governance. At the same time, financial institutions, under pressure from their own regulators to demonstrate operational resilience and robust risk management strategies, are increasingly taking climate risks into account when assessing the creditworthiness of applicants.

While not everyone has committed to the goals of the Paris agreement, the effects of rising temperatures affect everyone, endangering not only the environment but global economic stability. Companies need to actively track, identify and assess the risks resulting from this climate change because they can lead to market distortions, asset losses and systemic financial risks, especially if climate risks materialise abruptly. Such developments could result in high price volatility and economic losses and endanger long-term economic stability.

Integrating climate risk assessment into existing risk management frameworks is therefore crucial for companies as they navigate both climate realities and regulatory demands. By embedding climate risk considerations into their current strategies, organisations can systematically identify, analyse and evaluate potential threats, understand how these risks intersect with other non-financial factors and develop holistic risk mitigation strategies. This alignment of climate risk with strategy and other risks fosters cross-departmental collaboration and enhances transparency for stakeholders, ultimately positioning organisations to attract green financing and meet regulatory and investor expectations.

This white paper proposes a detailed methodology for conducting climate risk assessments by companies in the non-financial sector, emphasising the importance of scenario analyses to identify vulnerabilities and opportunities. By leveraging both qualitative and quantitative approaches, organisations can gain a holistic understanding of climate risks and develop informed, data-driven strategies to manage these risks sustainably and position themselves strategically for a dynamic and unpredictable future.