Adapt

When assessing risk exposure, businesses must evaluate the extent to which their assets are exposed to identified hazards in a given space or time, including property, vehicles, workforce and/or other assets. This involves considering asset-specific characteristics that influence interactions between the hazard and vulnerability, such as construction methods and materials used. By understanding the degree of expected impact to an asset at a given intensity of a hazard, businesses can better gauge their vulnerability and develop targeted strategies to mitigate these risks. Businesses can quantify their risk, which involves assigning a value-at-stake to identified risks to support better decision-making. Various approaches to risk quantification range from low to high complexity, including insurance benchmark estimates, asset-specific detailed risk analysis, portfolio-wide net risk quantification, and financial statement risk modeling. Partnering with risk identification providers who use advanced climate models and diverse data sources can ensure granularity and accuracy of outputs.

Case study: Use of different approaches for risk quantification by Philips

Philips, for example, undertook a multi-year risk quantification exercise to understand the financial value-at-stake across its sites and critical suppliers. Initially, they used insurance benchmark estimates to screen potential hazards and then conducted detailed site-specific assessments to refine the financial loss impact. This process involved working with site managers and external consultants to create a comprehensive view of risks, which was further refined by incorporating financial statement risk modeling.

Case study: Quantification of financial impact on supplier sites for a leading apparel company by Jupiter

Jupiter conducted a risk quantification analysis for a leading apparel company to assess the financial impact of physical climate risks on its supplier sites. The analysis revealed that the average annual loss from floods at a selected site was USD $0.5 million in 2020, projected to increase to USD $0.6 million in future decades. The study highlighted that the largest sources of losses were inventory and equipment damage, rather than building damage, providing valuable insights for the company's risk management strategy.

Continuously monitor and reassess your climate risk

Moreover, businesses should continuously monitor and reassess their risk exposure as new data and climate models become available. This ongoing process ensures that adaptation strategies remain relevant and effective in the face of evolving climate conditions. By integrating these steps into their overall climate adaptation and resilience planning, businesses can proactively manage risks and enhance their long-term sustainability.