![]() ![]() ![]() Their impact can be gradual, but escalate over time. The Task Force on Climate-related Financial Disclosure (TCFD) describes climate shocks as acute risk, and climate stresses as chronic risk. These sustained shifts in climate patterns can have long-term effects on supply chains, property value and insurability. Stresses are slow in their onsets, such as changes in precipitation, rising temperatures and seasonal shifts. Shocks – such as floods, storms or wildfires – are immediate, destructive and relatively short-lived. Physical climate risks can be either shocks or stresses. It takes into account both the direct physical impacts of climate change (such as floods destroying infrastructure), and direct and indirect socioeconomic responses to climate change (such as losses caused by direct damage to assets which prevents their operability, and the costs of repairing that damage). Physical climate risk describes the potential for physical damage and financial losses as a result of increasing exposure to climate hazards resulting from climate change. There are two types of climate risk that companies need to be aware of: physical climate risk and transition climate risk – each with its own drivers, challenges and consequences for organizations. Intensifying climate hazards could put millions of lives at risk, as well as trillions of dollars of economic activity and physical capital, and the world’s stock of natural capital.” The severity of these outcomes will be determined by the ability of individuals, organizations and governments to understand climate risk, and take effective adaptation actions to reduce it. In the coming decades, the impacts will be felt globally: a report from McKinsey warns that of the 105 countries it assessed, which represents 90% of the world’s population and 90% of global GDP, all “are expected to experience an increase in at least one major type of impact on their stock of human, physical, and natural capital by 2030. These catastrophes are “increasing in frequency and severity,” it notes. ![]() In 2021 alone, extreme weather events caused USD329 billion in economic losses – 45% higher than the 21st-century average, says a report by Aon. With such high stakes, reducing the uncertainty of that outcome is business-critical.Įvery organization in every sector, in every part of the world, faces varying degrees of climate risk – and that risk is escalating as climate change accelerates. Those consequences could be anything from minor inconvenience to a complete loss of an asset’s value or operability. This includes impacts on lives, livelihoods, health and wellbeing, economic, social and cultural assets and investments, infrastructure, services provision, ecosystems and species.įor organizations, it can be defined in practical terms as the measure of vulnerability to climate-related impacts that have financial consequences, or that may affect various aspects of financial performance. Climate risk is the potential for climate change to create adverse consequences for human or ecological systems. ![]()
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