Member Article

Translating climate analytics into metrics that businesses understand and value

Climate change is no longer a future threat – it is happening now and it is affecting communities, businesses, and economies. In a world where business sites, operations, supply chains, and revenue streams are increasingly exposed to various forms of climate risk, accessing data that helps organisations accurately forecast how assets and supply chains will be affected enables them to price risk and take measures to mitigate the worst impacts.

Climate analytics,which is the use of data analytics and modeling techniques to analyse climate data and understand the potential impacts of climate change on various systems and sectors, is an emerging solution to help businesses address these challenges.

What are climate analytics?

Climate analytics show risk exposure across climate perils, such as flooding, drought and heatwaves - and multiple climate change scenarios. This lets users assess exposure to physical climate risk across specific assets and broader geographic areas.

Regulation mandating that businesses report on their climate-related risks is picking up pace. Over 1,300 of the largest UK-registered companies and financial institutions are now obliged to make climate risk disclosures in alignment with the recommendations of The Task Force on Climate-related Disclosures (TCFD). Climate analytics therefore have an additional practical application helping businesses fulfill their fiduciary responsibilities.

There are a number of solutions that provide climate analytics, typically via web dashboards; at Sust Global, we also provide data via developer friendly APIs which can be integrated across applications and workflows.

How organizations are using climate data to prepare for a climate change impacted future

1. Risk management

Climate data enables organisations to assess climate-related risks across their physical assets and infrastructure, supply chain, customers, and competitors to get a clear view of where vulnerabilities exist. This enables a greater degree of accuracy for risk management and contingency planning. For example, one manufacturing organisation with a variety of assets and little flexibility to relocate, was able to get insights on their risk exposure at each location. This led to a series of workshops attended by various corporate stakeholders to discuss the risk data: resilience measures were assessed alongside the climate vulnerabilities which had been highlighted. Risk management plans were adjusted and sites at high exposure were added to an internal risk register.

2. Regulatory reporting

An increasing focus on the financial risks associated with climate change, particularly amongst investors, has led to the introduction of compulsory climate reporting across certain public and private organisations. The scope is expanding further all the time to include additional sectors and geographic regions demonstrating the growing relevance of climate risk reporting. Disclosures made in alignment with the TCFD framework provide investors and creditors better visibility on the risks and opportunities associated with the changing climate. Investors are increasingly putting pressure on their portfolio organisations to be TCFD compliant, whether or not it’s yet been mandated in their territory. This can be partly attributed to the rise of ESG investing, which is expected to have increased by 84% to include 22% of all financial assets by 2026, and is seeing investors take an increasingly active stance on issues associated with climate.

3. Operational planning

The assessment of physical climate risk for sites where businesses operate can inform strategic conversations about protective upgrades that may be needed, and how investment should be allocated to support such work. For example, at sites where heatwaves are predicted to worsen in the coming decades, heat proofing measures may be necessary. Similarly, mitigation measures for sites vulnerable to water stress might be required, and it is important to consider the timeline for implementation. One manufacturing organisation with sites in developing countries has used the data to facilitate discussion with the wider community around the sites in which they operate, so that collective action can be taken to support all sites in higher risk areas.

4. Strategic decision-making

With organisations under pressure on climate issues from stakeholders, customers and investors, presenting strategic plans which take account of physical climate risk demonstrates their preparations for a climate impacted future.

Assessing every aspect of their operations and those of their suppliers and taking the necessary measures to prepare, demonstrates their commitment to action. This is relevant for stakeholder communications and also ready brand building for sustainability conscious consumer-facing organisations.

Translating climate analytics into metrics that businesses understand and value

1. Financial loss modeling

Access to climate analytics lets you assess property value at risk across multiple climate scenarios, up to one hundred years into the future. Losses can be explored both at an asset level and across portfolios, enabling organisations to better forecast how climate may impact their business.

2. Climate adaptation investment ROI

Projected losses can be evaluated side by side with risk exposure metrics to determine ROI on potential investments in climate adaptation measures. Operations and / or Risk teams can then make the case to executive teams and investors to deliver such measures proposals, informed by robust climate data.

3. Stakeholder engagement

By quantifying climate risk in financial terms, internal and external stakeholders can be engaged around key strategic and investment decisions: for example, as part of a due diligence process, or through informing organisational sustainability strategy.

As we move towards a future increasingly impacted by climate change, planning for - and adapting - to its consequences will be vital for organisations across every sector, industry, and geography. In order to manage risk it must first be measured, so access to high quality, robust climate risk data will be essential in meeting the challenges posed by our changing climate.

This was posted in Bdaily's Members' News section by Sust Global .