How to Manage Climate Risk

STEP 2 TRANSLATE CLIMATE RISK INTO FINANCIAL RISK

By using data-driven tools and dashboards, you are already getting a picture of the relationship between physical climate risk and its financial impact on a building or organization. You may have identified that a site or building is at risk from flooding, fires or extreme cold. That threat may impede your ongoing operations or building access. To ensure that the asset is sustainable and viable, you might have to implement an upgrade you hadn’t initially planned for.

This is where climate risk meets financial risk. As the cost of capital works is added to your budget and models, it can have a bearing on acquisition, valuation, investment and disposal decisions. Below is a simple illustration of the financial surprises that can emerge and how to stay on top of them. By constantly monitoring the physical risk and communicating with the teams responsible for financial risk management, it can reduce the likelihood and response times for unforeseen risks.

How physical risks impact financial risks:

WEATHER HAZARDS AND PERILS

EXAMPLE FINANCIAL IMPACT

WEATHER HAZARDS AND PERILS

EXAMPLE FINANCIAL IMPACT

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