Chapter 7

Adapt

  1. Introduction
  2. Step 1: Establish a continuous process for climate risk analysis
    1. Get started: Define the scope and required data for your climate risk analysis
    2. Start analyzing your climate risk
    3. Assess exposure and vulnerability across assets and value chain and quantify your risk
    4. Ensure alignment with regulation, benchmarks, and reporting requirements
  3. Step 2: Formulate adaptation goal, and prioritize and implement adaptation pathways
  4. Step 3: Continuously re-evaluate the performance of adaptation options
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Start analyzing your climate risk

Once the scope and data are established, businesses should partner with risk identification providers who can ensure the granularity and accuracy of outputs. These partners typically employ teams of climate scientists, specialized models, and dashboards to simplify outputs and facilitate discussions. Leading partners leverage the latest generation of climate models, such as CMIP6, to generate insights and access a variety of data sources to validate outputs and provide ranged hazard scores. This collaborative approach ensures that businesses have a detailed understanding of the risks they face across various sites and perils.

During the analysis phase, it is essential to apply three lenses to assess the portfolio for risk: current risk level, change in risk, and risk across transition scenarios. This multi-faceted approach allows businesses to understand not only their present vulnerabilities but also how these risks may evolve over time and under different climate scenarios. Companies with a mature understanding of their physical risk often work with multiple providers specializing in different areas, such as reporting, risk identification, and risk quantification, to gain a comprehensive view of their risk landscape. Possible sources to get insights into this would be reports that companies disclose in the scope of the Task Force on Climate-related Financial Disclosures (TCFD) or Carbon Disclosure Project (CDP). These reports often include details on how they work with multiple providers for risk identification, quantification, and reporting.

Case study: Climate Risk Analysis in Nestlé's supply chain For example, Nestlé's risk team conducted a multi-stage risk identification process to improve understanding of climate-related risks in its supply chain, focusing on commodities such as cocoa, dairy, and palm oil. The process involved defining the scope by modeling the potential vulnerability of key raw materials to climate-related risks. The team gathered appropriate data by collecting geo-spatial data on supplier sites and identifying relevant perils to assess, including heatwaves, drought, and water stress. They used both qualitative and quantitative risk analyses to map these risks to Nestlé's supplier physical footprint. The analysis was based on recognized climate scenarios, such as those aligned with the IPCC's AR6 Climate Change 2021: The Physical Science Basis. Strong collaboration between ESG, Procurement, and Risk teams helped tailor the outputs and learnings of the quantitative analysis. The analysis continues to inform discussions on enhancing the resiliency of farmers and communities who are key to the supply chain.