Climate Risk 101: Understanding and Managing Climate Risk
Extreme weather events associated with climate change—from sudden catastrophes like hurricanes and wildfires to slow-motion disasters like droughts to permanent shifts in ecosystems around the world—impact not only millions of individuals and communities each year. They also hit hard for businesses. Whether you’re a small company or a global corporation, you need to understand climate risk: the degree to which your business’s ability to survive and thrive is impacted by consequences like supply chain disruptions, growing costs for materials and services, and even changing customer behaviors.
In the years ahead, businesses of all sizes will also discover climate opportunities, ways in which your company can shift practices to succeed on a rapidly changing planet. And ClimateHound is here to help.
Climate Risk Assessments Guided by TCFD
For years, folks around the world have been working to understand the different ways in which we will be impacted by global warming and how to be transparent about these impacts. Today, most organizations as well as climate-related standards and regulations lean on the Task Force on Climate-related Financial Disclosures (TCFD) framework developed in 2017 by an international task force to start to answer these questions. Why “financial disclosures”? Just as a publicly traded company must disclose other aspects of its business health and its exposure to risk so that investors can make informed decisions, climate risk is seen as an increasingly important disclosure to understand a company’s long-term viability.
As of 2022, TCFD’s 4,000+ supporting organizations span the public and private sectors and represent over 70 industries in 101 jurisdictions around the world. The TCFD framework considers multiple kinds of climate risks that can impact revenue, expenditures, assets, liabilities, and capital/financing. For example, physical risks from climate change include events like flooding and drought. Transition risks arise from adapting to a low-carbon economy include changing customer preferences towards more environmentally-friendly options as well as regulation related to packaging and reporting.
The TCFD framework consists of four recommendations and eleven underlying disclosures to understand and manage climate risk:
- Climate Governance,
- Strategy,
- Risk Management, and
- Metrics and Targets.
By aligning to the TCFD framework, companies can communicate to their current and future shareholders about how the climate might impact their value. Even if you’re a privately held company or a small business, leaning on the TCFD framework can help you to assess an increasingly important factor in ensuring your long-term success.
Focus on Food and Beverage Climate Risk
The TCFD framework is a helpful departure point to start thinking about climate risk, but every industry has unique challenges and exposures. For the food and beverage industry—the focus of ClimateHound’s unique platform—disasters that impact the agricultural sector can dramatically affect the availability and cost of, for example, the grains or water that are essential in brewing and distilling. As Hurricane Helene showed us in Asheville, North Carolina, where ClimateHound got its start, businesses can be closed for weeks or months when facilities and utilities are wiped out by a storm. That’s climate risk hitting home for the food and beverage industry.
At ClimateHound, we’re committed to helping businesses understand their specific climate risks—and embrace their unique climate opportunities. If you’re active in California, you may be mandated to report your risk under SB-261 (also known as Senate Bill 261 or SB 261), which you can learn about in this ClimateHound blog post. Even if you’re a small business, and maybe especially if you’re a small business operating on tight margins like most companies in this sector, knowing your climate risk can help you prepare for an uncertain future.
Start Managing Climate Risk Now!
As we’ve always said, you can’t manage what you haven’t measured. To get started understanding and managing your company’s climate risk and opportunities, ClimateHound recommends conducting a qualitative climate risk and opportunity assessment, which will give you insights into the priorities for your business. If you haven’t already completed a carbon footprint, now is also the time to get started! Quantified GHG emissions are one of the eleven TCFD-recommended disclosures, and they are also required by California regulation (more states may follow).
Just as importantly, working with ClimateHound can reveal climate opportunities that can give your business a competitive edge, from shifting to more fuel-efficient and ultimately less expensive forms of transportation to gaining market advantage by promoting business practices that align with consumer values. You CAN manage what you measure—including your success as a leader for the industry and the planet!