1. Module 2 Assessing Climate Change Risks
Country, Date, Presenter

2. Objective The objective of this module is to:
gain an understanding of the concept of risk and affiliated factors
learn about the different types of risk and their importance
comprehend the basics of an risk assessment and why it matters to businesses
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3. Businesss and Climate Risk Conceptualising Climate Risk
Outline / Agenda
Businesss and Climate Risk
Conceptualising Climate Risk
Risk Assessment
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4. I. Businesses and Climate Risk
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5. III. Businesses and Climate Risk – Risks
Adapting to Climate Change or … Managing Climate Risks and Opportunities
Are you familiar with this concept ?
Which existing risk management tools do you use in your work with SMEs?
What is the relevance of climate risk for them?
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6. III. Businesses and Climate Risk – Overview on different types of risks
Risks that climate change poses to businesses
Source: McKinsey 2015
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7. III. Businesses and Climate Risk – Overview on different types of risks
Source: C2ES 2013
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8. III. Businesses and Climate Risk – Overview on different types of risks
According to a study of KPMG (2008), these are the most important business risk types mentioned in relevant scientific research.
Source: KPMG 2008
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9. III. Businesses and Climate Risk – Overview on different types of risks
Source: KPMG 2008
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10. III. Businesses and Climate Risk – Risks
New risk:
Climate Change
SMEs face a range of risks and opportunities
Financial
Organisational
Legal and regulatory compliance
Reputation
Operational
etc…
Negative and Positive Consequences on the business
Company strategy, processes and assets affected
Cost benefits and new market opportunities
The need for a structured approach on how to assess and mitigate climate risks (Climate Expert)
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11. II. Conceptualising Climate Risk
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12. Task – What is risk? How would you define risk?
Please think of a short and concise definiton of risk and write in on a notecard.
Everyone shares his or her risk definition
Discuss the differences and similarities
Business risks from climate change are materializing rapidly, and it is fundamental to the success of companies to scrutinize how the consequences of CC will affect their operations, and plan for the risks that will have a significant impact on them
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13. II. Conceptualising Risk – Two types of risk terms
Company
Water quantity
(water risk)
Physical assets
(physical risk)
Financial assets
(financial risk)
Risk affecting...
Risk resulting from...
Impact
(flood, drought, heavy rain risk)
Regulation
(regulatory risk)
Other
(…) risk
Climate change phenomenon
(climate change risk)
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14. II. Conceptualising Risk – Terminology
“Risk is the combination of the probability of a consequence and its magnitude. Therefore risk considers the frequency or likelihood of occurrence of certain states or events (often termed ‘hazards’) and the magnitude of the likely consequences associated with those exposed to these hazardous states or events” (UKCIP 2003).
Direct risks (e.g. damages to buildings caused by natural disasters)
Indirect risks (e.g. rise in raw material prices due to drought-related crop failures)
Source: UKCIP 2003
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15. II. Defining Climate Risk – Likelihood and Magnitude
The probability or likelihood can be determined by looking at how frequent and at what intervalls a climate event has occured in the past, and, then, by predicting its occurrence for the future. Additionally, it must be analysed with which delay the impact follows an climate or wheather event.
The magnitude concerns the scale of the negative effects on the enterprise business but also the areas of impact within the company. It is to check which areas are affected, and if these are crucial to the business, such as the production processes or the stakeholders?
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16. II. Defining Climate Risk – Risk terminology in the Climate Expert
Magnitude
Climate change phenomenon
Impact
Negative effect on the business
RISK
Likelihood
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17. II. Defining Climate Risk – Phrasing risk in the Climate Risk
A risk in the Climate Expert relates to
It is the likelihood that a certain negative business effects occur; the likelihood is determined by the likelihood that a climate change phenomenon and resulting impacts occur
It should be phrased using the expected negative effects on the business and the impact from which it occurs; for example:
Destruction of machinery due to flooding
Reduction of worker productivity due to heat wave
The climate change phenomenon does not need to be mentioned
Climate change phenomenon
Impact
Negative effects on the business
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18. III. Risk Assessment
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19. Discussion – Dealing with uncertainty
Do you agree with the statements below?
How can you deal with uncertainty in the context of businesses and climate change?
“... it is clear that without certainty, we are unable to plan optimally for climate changes in the future.”
Source: C2ES 2013
“The high uncertainty concerning physical risks [of climate change] […] makes investment in adaptation plans potentially risky.”
Source: C2ES 2013
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20. III. Risk assessment – Dealing with uncertainty
Challenge:
It is often difficult to assess the likelihood of an impact as well as the specific negative effects on the business occuring from it
Potential solutions:
Consider experience and data from the past
Draw inferences from similar impacts
Use ranges
Work with different scenarios
Make your assumptions transparent
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21. Negative business effects
III. Risk assessment – Risk matrix
Negative business effects
5. Extreme
4. Very High
3. Medium
2. Low
1. Negligible
1. Rare
2. Unlikely
3. Moderate
4. Likely
5. Almost Certain
Likelihood
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22. Experience from practice – Examples of Climate Expert implementation
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23. Discussion – Assessing Climate Change Risks
How do you deal with risks in your work with companies?
Do you find the risk approach presented compelling?
Would you feel confident in dealing with uncertainty related to climate risks in an adaptation assessment?
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24. Thank you for your attention!
GIZ Germany Ms Janina Wohlgemuth +49 (0) –
adelphi Germany
Mr Frederik Eisinger (0) – 69
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25. Sources
C2ES 2013: Weathering the Storm: Building Business Resilience to Climate Change. Available at final.pdf GIZ & adelphi 2013: Trainers Maunal. Facing the Impacts of Climate Change. Indian SMEs and Climate Change. Available at: KPMG 2008: Climate Changes Your Business. KPMG’s review of the Business Risks and Economic Impacts at the Sector Level. Available at: IPCC 2010: Managing the Risks of Extreme Events and Disasters to Advance climate Change Adaptation. Available at: reports/srex/SREX_Full_Report.pdf McKinsey & Company 2015: How Companies can Adapt to Climate Change. Available at: productivity/our-insights/how-companies-can-adapt-to-climate-change UKCIP 2003: Climate Adaptation: Risk, Uncertainty and Decision-Making. UKCIP Technical Report. Available at: framework.pdf
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