Climate Risk & Adaptation: Q&A

Thank you to everyone who attended our webinar on climate risk assessment & adaptation strategies, organised on April 5^th 2022 as part of CDP’s Bitesize Sustainability Webinar Series for Gold Accredited Solutions Providers. During the event, we received a number of questions – in this post, we respond to these questions and provide further information on how to effectively incorporate climate risk into your organisation’s strategy, using the example of Getlink Group. 

 

Many thanks to our speakers, Véronique Mariotti, Senior Manager & Climate Risk Expert from EcoAct, and Vincent Ducros, Environmental Director of Getlink Group.

 

In general, how do you financially quantify climate risks using economic indicators?

Véronique Mariotti: The best way to perform a high-quality financial quantification is to onboard the company’s financial team at the beginning of the climate scenario assessment. Sometimes it is not possible, in which case you can gather financial information from other internal stakeholders like insurance and risk departments that have a global overview of the company. Then, depending on the risks, you might need to get current costs from a global facility manager or a particularly exposed operational unit. Economic indicators will of course vary from one risk to the other.

 

How did Getlink Group perform the economic assessment of the impact and the cost of the response to the identified risks?

Vincent Ducros: Not all of the risks are material; for the transition risks and opportunities that are, we used business assumptions (share of specific clients and assumed impact for example) to assess the anticipated impact on turnover. Given that there is always some level of uncertainty, these impacts are considered to be orders of magnitude rather than exact figures. Hence, disclosure of impact quantification must be properly assessed.

For physical risks, we have assessed high-level impact in terms of interrupted business days, which we can translate into financial costs. For heat waves, we based our estimations on existing cooling costs and calculated the potential future impact.

 

What was the biggest challenge faced by Getlink Group as you launched your climate risk study? How did you overcome it?

Vincent Ducros: We were faced with two main challenges – the first was the assessment of the financial impact, which we addressed by using all of the data currently available to make educated guesses that allowed us to construct our model. Secondly, we found that we had limited data available related to flooding risk. To address this challenge, we worked with EcoAct’s experts to develop a bespoke hydraulic model in order to better understand and anticipate this potential risk.

 

In terms of time horizon and scenario analysis, if you could recommend 2-3 specific climate scenarios and time frames, what would they be? 

Véronique Mariotti: For time horizons, you can align on the IPCC time horizons (2021-2040, 2041-2060, 2081-2100) and choose the horizon that makes the most sense for your company’s strategy (for example, for infrastructure construction, the time horizon is longer than for manufacturing). For scenarios, I would recommend following at least a 2°C or 1.5°C scenario to assess transition risks and opportunities, and a 4°C scenario to assess physical risks.

 

During the webinar, you mentioned that EcoAct has worked with over 60 companies across multiple sectors to address climate risk and adaptation strategies – in your experience, which sectors are the most at risk?

Véronique Mariotti: Risk exposure has less to do with your sector as it does with where you stand within the value chain of a given sector. EcoAct worked with an energy producer whose facilities were directly exposed to heat waves, while at the same time working with an energy engineering company that was not directly impacted by any climate hazards. All economic actors across all sectors will likely be impacted in different ways, depending on their business model, the resources they depend upon, and their geographic location(s). As an example, textile and agro-industry are very exposed in terms of their resources (agricultural commodities or carbon intensive packaging), while the transport sector could be positively impacted by carbon taxes if the transportation mode is low carbon, or negatively impacted if the transportation mode is carbon intensive.

 

Do you have any final advice for organisations at the beginning of their climate risk journey? 

Vincent Ducros: My advice for any organisation starting a climate risk assessment is the following:

• First, secure the engagement of your top management – without their support, the process will be quite difficult! On this note, it is helpful to follow your organisation’s risk management framework when considering climate risk (level of impact and likelihood, risk mapping habits, etc.), in order to facilitate understanding and reporting.
• Include your technical departments from the beginning – this cannot and should not be a simple “tick the box” exercise, everyone should be involved.
• Pay attention to the time horizon definition – for Getlink Group and in terms of physical impact (heat waves, rainfall…) there was not a big difference between the 2030, 2050 and 2100 horizons. For your organisation, this might not be the case – you need to be clear when communicating with top management about when risks are likely to occur.
• Identify “no regret” actions, for both short and long-term impacts
• See this approach as a long-term journey vs. a one-time project. You will need to take time to truly assess the financial impacts of risk with cross-functional workshops, and should create iterative action plans that anticipate updates, including regular deep dives into the data.

 

You can access the full replay of the webinar below:

 

If you would like to learn more about climate risk and adaptation for businesses, we would be happy to hear from you!