Risk Management in Strategy

Climate Change Risk Assessments 🌎 Climate-related financial disclosure requirements are expanding across jurisdictions, increasing expectations for companies to assess and report on climate-related risks and opportunities. A structured climate change risk assessment (CCRA) is central to meeting these evolving regulatory demands. CCRAs evaluate both physical risks—such as extreme weather events, water stress, and sea level rise—and transition risks, including policy changes, carbon pricing, and shifts in market or technology landscapes. They also help identify potential opportunities linked to decarbonization, energy efficiency, and new revenue models. Scenario analysis is a core component. It enables companies to test strategic resilience under divergent climate pathways, including high-emissions futures and low-emissions transitions aligned with the Paris Agreement. Most regulatory frameworks now require both perspectives. Benefits of a robust CCRA include improved risk management, reduced exposure to disruptions, and strengthened alignment with investor expectations. Insights from these assessments can be embedded into enterprise risk systems, capital planning, and strategic roadmaps. Key challenges include short-term thinking in risk registers, limited access to forward-looking climate data, and misalignment between climate risk analysis and existing sustainability goals. These gaps can reduce the effectiveness of disclosures and slow organizational response. Recommended approaches include leveraging established scenarios (e.g. IPCC, IEA), integrating outputs into ERM systems, using frameworks like ISSB and TCFD for structure, and applying competitive benchmarking to validate assumptions. Cross-functional engagement improves practical relevance. As regulatory standards converge, CCRAs are becoming a baseline expectation. Those who develop structured, forward-looking assessments will be better positioned to adapt business models, manage uncertainty, and align with capital markets under increasing climate scrutiny. Source: Ramboll #sustainability #sustainable #business #esg #climatechange #risk

🌊🌪️ Climate change is here to stay – #Omnibus or not, every company has an intrinsic incentive to assess its exposure to climate-related risks and hazards like floods and extreme weather events! ❗Understanding these risks, managing them early by taking risk mitigation measures and strategically adapting to the new market conditions they create will be key to success in the 21st century. 🇪🇺 Furthermore, an assessment of climate-related risks is mandatory under all sustainability regulations: #CSRD, #IFRS, #EUTaxonomy, and for banks, under the EBA guidelines. However, assessing climate-related risks is difficult. In their climate change adaptation strategy, the European Commission states that “Any new investment and policy decision should be climate-informed and future-proof (…).“ But „at present, data quantifying disaster losses is unsatisfactory: it is often not recorded and/or not available in accessible formats and databases once collected.“ ▶️ Open data platforms promise help. They allow companies to assess their exposure and vulnerability to climate hazards at locations free of charge and without much effort. ❗The data, however, is often rather imprecise and surface-level. But it is suitable for an initial risk exposure screening. And it is even sufficient to be compliant with EU taxonomy, CSRD & Co.! To check out open data platforms, start with the resources on the UN Environment Programme's World Environment Situation Room’s website.

🍃 Are climate risks financial risks? Absolutely! New research from Verisk Maplecroft shows that over 1 trillion is at risk even in a moderate warming scenario. In the higher warming world we are heading for, risks could be way higher. The study used the Climate Hazard and Vulnerability Index (CHVI) to show that policymakers and corporate leaders are missing key risks. -48 countries will be highly vulnerable to socio-economic climate impacts by mid-century, double today’s figure. -Major emerging markets are expected to face significant climate-related disruptions. ❓ What's to be done? Companies need dedicated climate leadership at the highest level to proactively identify risks, anticipate market disruptions, and strategically invest in long-term resilience. Firms need to move beyond physical hazards to systematically report and manage socio-economic climate vulnerabilities. Transparent, detailed disclosures help stakeholders understand risks and encourage informed investments. Corporations must prioritize investment in resilient infrastructure, diversified supply chains, and sustainable practices, particularly in vulnerable regions. This strategic foresight protects operational continuity and market valuation. The globalized nature of our modern economy means that climate vulnerability anywhere becomes a financial risk everywhere. 💬 Full report in the comments, where you can share your thoughts too! #ClimateRisk #Investors #Resilience #ClimateAction #PhysicalRisk #Finance #Risk #ClimateChange #Sustainability #ESG

INSURANCE HAS HIT A BRICK WALL The insurance industry, a cornerstone of our financial system, has hit a wall. For decades, it relied on a simple idea: the past could predict the future. But it has now been thrown into a world of massive uncertainty, where the climate is no longer steady, and yesterday’s models are no longer enough. This isn't a temporary crisis; it's the beginning of planetary insolvency, a situation where rising costs of climate-related damages consistently surpass our global ability to cover them. The fundamental principles of insurance—diversification and historical data—are being undermined by the increasing burden of interconnected, systemic risks that develop faster than a slowly adapting industry can respond. We see the first cracks in the foundation as homeowners' insurance becomes unavailable in states across the US. But the contagion is spreading. Soon, we will realize that much of the corporate world owns infrastructure that is becoming uninsurable. This isn't just an insurance problem; it's a systemic threat. Banks depend on insurance. Trillions of dollars in private credit are backed by physical assets—collateral that is now dangerously mispriced because its climate risk has been ignored. As David Howden, CEO of the Howden Group, warned, “the iceberg is looming.” Insurability is no longer just about protection; it is about access to capital. The only way forward is a fundamental shift. The industry must move from solely transferring risk after a disaster to actively reducing it before it happens. This involves embracing adaptation. We see pioneers already doing this—from Iberostar Hotels restoring mangroves to protect its properties, to renewable energy companies redesigning solar panels to endure severe hail. They understand that resilience is now the key. But to make these adaptation decisions effectively, we must let go of the old mindset. Radical uncertainty calls for a new approach—one that moves from Newton’s predictable world to a quantum realm of probabilities. We need to adopt stochastic thinking and new tools that can model a non-stationary future. The ability to quantify this risk, assess the cost-benefit of adaptation, and guide vital investments is no longer just theoretical; it is now visible and accessible. It demands fresh strategic thinking from leadership at all levels, along with a commitment to see the world as it truly is, not as it once was. Leaders who embrace this new reality will not only navigate the crisis but also shape the resilient economy of the future. So, where can we find modelling that is truly stochastic and captures the complete probabilistic nature of our climate future? What does it look like? How can we experiment with it? How does it complement the CAT models we are familiar with? Try RiskThinking.ai’s ClimateEarthDigitalTwin™, the only true stochastic climate modelling platform available. #climaterisk #insurance #adaptation #stochastic

My underwriter friend shared his growing frustration with the shifting dynamics of his role caused due to Increasing pressure to meet number targets rather than focusing on thorough risk assessment. Regardless of the risk quality, premiums often fail to align with the exposure, which is deeply concerning. Client’s current obsession on L1 over valuing insurers’ expertise in risk advisory and mitigation is alarming. If this trend persists, the insurance sector risks significant instability. As an insurer, we all are troubled by the rising frequency of AOG losses. Events once considered rare now occur every few months in unexpected regions like Kolkata and Punjab, with recent floods serving as stark examples. This unpredictability challenges insurers’ ability to underwrite risks effectively. Moreover, financial pressures are driving clients away from prudent risk management, resulting in substantial non-AOG losses that strain the balance sheets of insurers and reinsurers alike. Compounding the issue, the market is aggressively offering steep FLEXA discounts and now even slashing STFI and EQ rates, further undermining sound underwriting practices. This race to the bottom prioritizes short-term gains over long-term sustainability, putting the industry at risk of systemic failures. #Insurance #RiskManagement #ClimateImpact #Underwriting

The problem of underinsurance among businesses, especially SMEs, is often framed as a simple cost-saving versus risk trade-off. However, this oversimplification ignores the intricate factors leading businesses to underestimate their vulnerabilities and the devastating ripple effects of being caught unprepared. A concerning report mentioned that 85% of MSMEs in India are uninsured! Moreover, many insured businesses have taken a policy only because it is mandated by a regulatory. Adding to this issue, I have witnessed multiple businesses that use insurance as a risk mitigation tool find their policy useless with inadequate coverage when facing a complex claim. Hidden liabilities are probably the most common reason behind such situations. Businesses are lulled into a false sense of security, only to discover the gaping holes in policy exclusions once a disaster strikes. The worst part is that such losses don't happen in a vacuum. Underinsured companies delay supplier payments, miss payroll obligations, and break contracts due to extended downtime. This sends tremors through the entire network they rely on. The true cost goes beyond immediate losses. It leads to stalled growth, lost opportunities while scrambling to recover, and a tarnished reputation that lingers long after the initial crisis. There’s a lot businesses can do to avoid such situations. The problem is not limited to saving costs on low premiums with inadequate coverage, or lack of awareness. The problem lies in bad strategic decisions. Many businesses, especially those with substantial tangible assets, underestimate the complexity of valuation in the modern economy. Outdated valuations often focus on physical assets – property, equipment. But what about lost revenue during downtime, the cost of data recovery after a cyber attack, or reputational damage that impacts future deals? Let’s unfold more layers. Businesses that depend on a network outside their direct control may have standard insurance coverage. But what do they do when their vendors are uninsured and suffer a major disruption? Managing risks in a volatile market isn't a simple accounting exercise. It needs to account for sector-specific risks and evolving threats to arrive at the true level of insurance protection required. Here's where a mindset shift is crucial. Treat your broker as a translator, not just a seller. Insist on plain language explanations of exclusions, and actively model how different policy options play out in 'worst-case' scenarios. Negotiate customisation to factor in that worst-case scenario, and be prepared to pay a premium for it. Use annual meetings to present changes in your business – new markets, technological shifts – and demand the insurance evolves in step. Indian businesses can't afford to view insurance as a sunk cost. It's an investment in securing the future. Take command of your risk profile and quantify the unknown to fill potential coverage gaps. Policybazaar For Business

Recent findings from the ninth annual The Lancet Countdown on Health and Climate Change report highlight the disproportionate impact of #climatechange on low-income countries. While deaths from fossil fuel-derived air pollution dropped by 7% between 2016 and 2021—largely due to coal phase-outs in wealthier nations—many low-income countries still depend heavily on biomass and other polluting fuels for household energy. This dependency not only harms the environment but also disproportionately affects women and children, who are often responsible for sourcing and burning these fuels. Alarmingly, despite the evident risks, governments and #fossilfuel companies continue to invest in #oilandgas assets, threatening to push global temperatures beyond critical thresholds. In 2022, fossil fuel subsidies surpassed national health spending in over 20 countries. #Extreme heat poses an "insidious" threat, particularly to vulnerable groups like infants, the elderly, pregnant women, and those with pre-existing conditions. In 2023, these populations experienced a record high of 14 heatwave days per person, exceeding previous records by over 20%. The combination of a warming planet and an aging global population intensifies these risks. Heat exposure led to a record 512 billion potential work hours lost in 2023, with about two-thirds occurring in the agricultural sector of low and medium HDI countries. This resulted in an economic loss equivalent to 8% of GDP for low HDI countries, compared to just 1% for wealthier nations. It's imperative that we recognize climate change as not just an environmental issue but a profound health crisis. Collaborative, cross-sector action is needed to mitigate these impacts and address the stark inequalities highlighted in this report. The health community, governments, and industries must work together to promote sustainable practices and policies that prioritize global health and equity. Check the World Meteorological Organization work on health and climate 👇 https://climahealth.info/ https://lnkd.in/dbYS6Y-d

As summer heatwaves intensify, so do the economic risks 🔥 Our latest analysis finds that the recent heatwave could cost Europe up to -0.5pp of GDP. Estimated losses range from -0.1pp in Germany to -1.4pp in Spain, with -0.6pp for the US and -1.0pp for China. The rising frequency of extreme weather isn’t just an environmental issue—it’s an economic one. To put this in perspective: one day of extreme heat (above 32°C) is roughly equivalent to half a day of strikes in terms of economic disruption. 📉 While heatwaves temporarily disrupt manufacturing and services, partial catch-up effects are likely as conditions normalize. However, losses in agriculture and infrastructure tend to be more persistent. 🔧 Adaptation is key In the short term, early warning systems and prevention measures can reduce impact. But these must be paired with longer-term structural solutions: • Urban greening to cool cities • Climate-proof infrastructure • Adjusted working hours and building standards #GDPImpact #ClimateAdaptation #Macroeconomy #UrbanGreening #ResiliencePlanning #ClimateRisk #Ludonomics #AllianzTrade #Allianz

I am happy to co-author this article with Beatrice WEDER DI MAURO, President of the CEPR - Centre for Economic Policy Research, reflecting on the urgent need to engage in collective thinking and action to adapt our response to the challenge of insurability in the face of escalating climate risks. This article, which captures key convictions from our joint workshop hosted at Collège de France by the AXA Research Fund and CEPR - Centre for Economic Policy Research, couldn't have been more timely.   Devastating floods in Valencia, the wildfires in Los Angeles, the typhoons in Mayotte and La Réunion... These recent climate catastrophes show a clear reality: climate risks are intensifying and the protection gap for local communities and economies are becoming evident. Global economic losses from extreme weather events reached $320 billion in 2024, while in Europe, only 25% of economic losses were insured - leaving individuals, businesses, and communities vulnerable.    To address this, we need to enhance risk-sharing mechanisms and promote partnerships between public institutions and private companies.   Ensuring insurance accessibility and effectiveness is crucial. This can be done through: ➡️ Hybrid models, combining market mechanisms with public-private partnerships, to help ensure broad coverage and affordability. France’s CatNat regime and Switzerland’s hybrid model offer valuable insights. These models can be adapted to regions facing extreme exposure, such as sea level risks. ➡️ Greater investment in prevention and risk-sharing mechanisms. Initiatives like local municipal risk assessments can help small municipalities assess and mitigate local climate risks. ➡️ Impact underwriting, where insurers incentivize policyholders to adopt risk-reducing measures in exchange for lower premiums. ➡️ Public education on climate risks and stronger coordination between insurers, governments, and consumers to ensure preventive measures are taken seriously.   As we move forward, it's clear that policymakers, insurers, and society must work together to strike a sustainable balance between affordability and fiscal viability. This is not just about who pays the bill. It is about how we manage risk in an increasingly uncertain climate landscape. Let's continue to foster collaboration and innovation to close the protection gap and build a resilient future. 👇 https://lnkd.in/er6BkrtZ

The Columbia Climate School, with support from The Rockefeller Foundation, has unveiled a novel index that integrates countries’ vulnerabilities to cyclones, floods, droughts, earthquakes, conflicts, and other hazards with their ability — due to availability and access to financing—to take prevention, recovery, and rebuilding actions. Illustrating current and future risk exposure scenarios of 188 nations, the Climate Finance (CliF) Vulnerability Index’s interactive dashboard identifies the 65 most at-risk, ‘Red Zone’ nations ― two-thirds of which are in Africa. The overarching goal of the CliF Vulnerability Index is to promote more comprehensive risk assessment standards, target resources for various bands of vulnerability, and ultimately, inform how to more effectively reach communities facing various types of disaster and financial risks. https://lnkd.in/eTpqRzbM Read more here: https://lnkd.in/emGc4MDR