What are compound climate risks and how might they impact companies?

Compound climate risk is an increasingly common term in conversations about climate change. It is also becoming more prevalent in non-financial corporate reporting. In the context of climate change, compound risks or complex risks refer to a combination of climate risks whose collective impact might be more severe than when they occur alone.

It is quite possible for a geographical location to be affected by several climate hazards, but what would happen if these hazards were to occur in a period of time small enough for them to interact with each other? EcoAct expert, Gaëlle Clain explains what compound climate risks are, their potential impact, and how EcoAct can help you understand them to better respond to climate uncertainty.

What are compound climate risks?

“Compound risks” are when two or more climate risk hazards (not all of which are necessarily extreme) affect each other, increasing the overall severity of risk. Climate hazards can be characterised by single extreme events, multiple coincidents or sequential events that interact with exposed systems or sectors.

The Intergovernmental Panel on Climate Change (IPCC) Report on Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation defines “compound events” as events where multiple extreme events of either different or similar types occur simultaneously and/or in succession. These compound events can often impact ecosystems and societies more strongly than when such events occur in isolation.

Compound events can be:

• Of the same type: in which case we speak of grouped events. For example, a succession of tropical cyclones following similar paths due to atmospheric blocking and favouring conditions for cyclogenesis (Figure 1).
• Of different types: for example, landslides caused by biomass fires followed by intense rainfall or flooding (Figure 2).

In 2021, a study proposed the creation of a “framework to strengthen climate-related compound risk assessment” by clarifying the types of interactions that generate risks and their origins, and describing the physical drivers that combined form a compound event (Figure 3).

These include:

• Societal or environmental impact, for example, damage to a road network or crop loss
• Climate-related hazards, for example, heatwaves, floods and landslides
• Physical drivers of climate-related hazards, for example, large-scale atmospheric circulation blockage, which would lead to persistent dry and hot weather causing drought and/or heatwaves.
• Modulators influencing the characteristics of physical drivers, for example, a statistically abnormal atmospheric circulation for the season
• Finally, climate change influences modulators, physical drivers and climate-related hazards

 

Beyond the physical setting, socio-economic factors can also influence compound climate event impacts. These include existing climate change adaptation measures, and public governance at all scales. Thus, adaptation solutions in the urban environment can reduce the impact of heat waves on people’s health. These include the greening of spaces, the reduction of heat sources and the use of high albedo materials [ Thèse de doctorat de Sonia le Mentec, 2022, Univ. Paris Saclay].

In the event of an extreme weather event, such as a severe drought, public support processes that provide food and care to vulnerable populations will help reduce the impact of the weather event on the health of the population.

Similarly, compensation from government or insurance to livestock keepers and farmers whose livestock/crop has been lost due to the drought will help to mitigate the impact of the drought on the agricultural sector in that country.

Compound risk exposure is not limited to the safety of goods and people; private sector companies are also affected by this type of climate-related risk in the context of regulatory frameworks. For example, for certain sectors The European Taxonomy requires that compound risks be taken into account and their impact assessed.

Compound risk categories

Compound risks are a rather complex topic. The frameworks defining them are continuously evolving due to the diversity of the factors and processes involved. A study, published in 2020, proposed the following compound risk typology:

1. Pre-conditioned events refer to a situation in which a pre-existing climate or weather condition may aggravate the impact of one or more hazards: an example that makes the news every year is the influence of spring weather on vegetation characteristics in summer. A wet or very dry spring will influence conditions for vegetation and agricultural dynamics in the following season, and this impact could result, for example, in crop losses.
2. Multivariate events caused by the combination of several factors occurring simultaneously and/or which take place in the same geographical area: in estuarine areas, for example, an abnormally high river flow and a high storm surge may contribute to a flood whose impact is amplified by the simultaneous occurrence of both phenomena. This compound event can affect cities such as Bordeaux (Figure 4) or London.
3. Temporally compounding events that can be addressed on different time scales: for example, drought events occurring several years in a row can impact vegetation cover and ultimately lead to extreme temperatures that would have been reduced with more vegetation.
4. Spatially compounding hazards that can occur at large geographic scales. In 2018, unfavourable weather conditions for cereal crops (heat and heavy rainfall in winter, cold and intense rainfall in spring and drought in summer) occurred in Europe, affecting France and Germany in particular. Cereal production in France fell by 8.8% and by 16.9% for durum wheat alone. In Germany, the 2018 cereal harvest was the lowest in 24 years. The soft wheat harvest was 23% below the five-year average and the rye harvest was 20% lower than in the 2017 harvest.

Why is awareness of compound risks growing?

Compound risks are attracting the attention of scientists, insurers, and public authorities because they are an aggravating factor of climate hazard impacts. In 2014, the IPCC assessment report on emerging risks and vulnerabilities mentioned that climate change interacts with and amplifies pre-existing risks. In 2021, researchers estimated the financial impact of compound risks (of various types), the maximum of which they believe is close to 150% of the cost of isolated risks.

On the other hand, multivariate compound events are likely to lead to other climate-related hazards. For example, repeated flooding over time creates an environment conducive to landslides. Another example is droughts followed by heavy rainfall. Water will tend to run off the dry ground instead of being absorbed, which can lead to flooding (Figure 5).

 

EcoAct can help you build climate resilience into your organisation

In 2022, EcoAct launched its Climate Risk Platform (ECLR). Among its many functions, it helps determine whether an organisation’s physical site is exposed to climate hazards.

Some of the indicators used to carry out the diagnoses, such as the “Heat Index” considers several climate variables. As the resolution of ECLR’s models is less than or equal to 25 km (12 km in Europe), this index can be used to assess the exposure of a site to various multivariate compounding events (the “Heat Index” is a measure of how hot it really feels when relative humidity is factored in with the actual air temperature).

What if the “Heat Index” or other predefined indicators selected by the IPCC do not seem relevant to the compound risks that affect your business sites?

Based on the unique characteristics of your business operations, ECLR can assess the exposure of physical sites to compound risks in past and future time periods under different climate change scenarios. These unique characteristics can serve as the basis for creating tailored indicators whose nature and thresholds align with the sector in which your business operates. Working together, we define a climate event* (see below) and the algorithm supporting the ECLR platform will then analyse the climate data to determine how this pre-defined event is likely to evolve under different climate change scenarios.

 

What is a ‘climate event’? Technically, a climatic event is defined by several parameters which can be: A focus on one or more climate variables Thresholds for the start or end of the event A duration of the event A minimum, maximum and median intensity A geographical area concerned It is therefore possible to define one or more climatic indicator according to the client’s precise needs. For example, let’s imagine that, due to certain specificities, the activity of your company is impacted when the rainfall on site is lower than a threshold of 10 mm/day and also when the night temperatures are higher than 20°C. We can work with you to create a climate event that reflects the impact of these weather conditions on your business, taking into account not only the past period but also climate change scenarios (Figure 6).

 

 

 

To request a demo of our ECLR platform today and learn how it can help your organisation better assess, adapt to, and mitigate the risks of climate change please get in touch.

 

 

 

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References

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