Smarter risk strategies for evolving climate

6-Step Methodology for Climate Risk Assessment 🌎 Addressing climate-related risks is increasingly essential as extreme weather events, resource scarcity, and ecosystem disruptions become more frequent and severe. Effective Climate Risk Management (CRM) equips governments, organizations, and communities with the tools to anticipate, prepare for, and mitigate these impacts. A structured approach to climate risk assessment not only identifies vulnerabilities but also informs proactive measures that protect lives, livelihoods, and essential infrastructure. The GP L&D’s 6-step methodology offers a practical, systematic framework for understanding and addressing climate risks, integrating these insights into public policies and investment decisions to build resilience and promote sustainable development. The first step in this methodology is to analyze the current status to determine information needs and set specific objectives. Establishing a clear baseline of vulnerabilities helps ensure that the entire process remains aligned with the climate resilience goals set out from the start. From here, a hotspot and capacity analysis is conducted, identifying regions and systems most exposed to climate risks—such as droughts or floods—and evaluating the local capacity to respond. This targeted analysis allows for efficient resource allocation by pinpointing areas of highest priority. The methodology then adapts to local contexts by developing a tailored approach that reflects unique socio-economic and environmental factors. This customization enhances the relevance and accuracy of the risk assessment, making it more actionable and specific to each setting. Following this, a comprehensive risk assessment is conducted, using both qualitative and quantitative measures to capture the full range of potential impacts. This dual assessment provides a complete understanding of direct impacts, such as infrastructure damage, and indirect consequences, like disruptions to livelihoods. An evaluation of risk tolerance follows, defining acceptable levels of risk and helping prioritize the most urgent interventions. This clarity on risk thresholds ensures that resources are directed to where they are most needed. Finally, the methodology identifies feasible, cost-effective measures to mitigate, adapt to, or prevent potential losses and damages. This step aligns recommended actions with budget and policy constraints, ensuring that interventions are practical and impactful. By adopting this structured approach, decision-makers can better manage climate risks, develop adaptive strategies, and enhance resilience tailored to local needs and resources. Source: Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) #sustainability #sustainable #business #esg #climatechange #climateaction

Many companies are aware of physical and transition risks, but too often, they underestimate their true impact. And that's understandable - many of these risks are new, and difficult to grasp, let alone quantify. But that doesn't mean that they don't exist. From rising carbon pricing and changing demand to increasingly severe weather events, these risks are reshaping industries often faster than expected. Yet, many businesses still struggle to fully quantify these challenges and integrate them into their strategies, leaving value on the table. In collaboration with the Alliance of CEO Climate Leaders of the World Economic Forum, we at Boston Consulting Group (BCG) are proud to launch The Cost of Inaction: A CEO Guide to Navigating Climate Risk. This report reveals the scale of the challenge and highlights actionable strategies to help businesses manage risks and capture opportunities: - Physical risks, such as storms, floods, and heatwaves, could jeopardize up to 25% of EBITDA in infrastructure-heavy sectors by 2050. - Transition risks, including rising carbon pricing and stricter regulations, could impact up to 50% of EBITDA for emission-intensive industries by 2030. - Climate resilience investments, like flood protection systems, are yielding $2–$19 in returns for every $1 spent. The report also features a practical guidebook for CEOs, providing tools to quantify risks, prioritize investments, and unlock growth in the green economy. 🔗 https://lnkd.in/eTDuUqfe This report is the product of exceptional teamwork. My thanks to Pim Valdre and Pedro G Gomez Pensado from #WEF and my BCG colleagues: Rich Lesser, Dr. Patrick Herhold, Sylvain Santamarta, Jens Burchardt, Annika Zawadzki, Lorenzo Fantini, Giovanni Covazzi, Nicolas Salomon, Anna Olivia Bendixen, Rishi Sinha, and Marion Merenda.

Investing in a Changing Climate: Climate change presents two major financial risks for #investors, transition and physical risks; together, these risks accelerate the devaluation of #assets, potentially rendering them stranded long before the end of their expected lifecycles. 🔹 Transition risks—driven by rapid policy shifts, evolving market behaviors, and technological innovations—impact industries beyond fossil fuels, including real estate, automotive, agriculture, and heavy industry. 🔹 Physical risks—such as extreme weather, rising sea levels, and prolonged heat stress—can disrupt supply chains, reduce worker productivity, and devalue assets. A delayed transition brings hidden risks—while some sectors (utilities, basic resources) may see short-term relief, they face sharper, more destabilizing corrections when policy action eventually accelerates. Using NGFS climate transition scenarios (Baseline, Net Zero 2050, and Delayed Transition) alongside Discounted Cash Flow (DCF) and Interest Coverage Ratio (ICR) valuation methods, we identify sector-specific vulnerabilities across the US and Europe. 📉 Sectors at risk under a Net Zero 2050 scenario: 🔹 Real estate (-40% in Europe) due to energy efficiency mandates and rising costs. 🔹 Telecommunications (-26.3%) and consumer staples (-24.8%) facing stricter carbon regulations. 🔹 Energy (declines of -6% to -7%) as fossil fuel operations become costlier. 🔹 Basic resources (-11.9%) and technology (-11.7%) showing relative resilience but still facing policy-driven adjustments. 📈 Sectors showing resilience across scenarios: 🔺Technology & Healthcare remain stable due to innovation and lower emissions intensity. 🔺Consumer discretionary in the US (-16%) sees moderate declines but adapts through renewables and supply chain shifts. A well-orchestrated transition is critical to minimizing financial shocks. Scenario-based risk assessments allow investors to safeguard portfolios, mitigate stranded asset risks, and capitalize on opportunities in the green economy. #ClimateRisk #NetZero #SustainableFinance #ESG #Investing #ClimateTransition #RiskManagement #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

It’s never the obvious risks. It’s the outlier events that ruin investment returns and business operations. Most risk strategies focus on the 80%—the risks that are well-known, have happened before, or are common in your industry. It’s logical and efficient. But the remaining 20%—the outlier events—can be catastrophic if ignored. For example: extreme weather events. They’re becoming more frequent and severe, and their impact is global. Businesses that aren’t prepared could face devastating consequences. 3 steps any business can take to immediately be more prepared for the outliers: 1) Have a business continuity plan. Know how you’ll keep operations running in a crisis. The vast majority of companies don’t think of this until the crisis has already started. 2) Protect your people. Ensure you have plans to evacuate or support employees in affected areas. 3) Diversify risk. Spread your operations, supply chains, and key assets to avoid over-reliance on one region or system. Outlier events might feel unlikely, but when they happen, they can define the survival of your business. With the world today feeling more volatile, the question isn’t if they’ll happen—it’s when. #climatechange #businesscontinuity #riskmanagement

🌟 Adapting to Climate Change: How Risk Models Are Evolving Is your underwriting prepared for the challenges of a changing climate? 🌍 Climate change isn’t a distant threat—it’s happening now, and its impact on the insurance industry is profound. Working across markets like the UK, LatAm, Japan, and Australia, I’ve witnessed how global carriers are stepping up to meet these challenges. 🔍 What’s new in climate risk modeling? 🌪️ 1. Real-time risk assessment – Advanced predictive analytics and real-time data are helping carriers stay ahead of risks like hurricanes and wildfires. 🌎 2. Region-specific strategies – In LatAm, solutions must address localized vulnerabilities, while Europe’s focus on sustainability demands compliance-driven approaches. ⚡ 3. Parametric insurance on the rise – Fast, transparent payouts and simplified claims processes make these products a game-changer for high-risk sectors. 🚀 Takeaway: The insurers who embrace tech, tailor strategies regionally, and innovate their offerings will lead the way in both resilience and growth. 💬 What’s your biggest challenge in integrating climate risks into underwriting? Let’s discuss ideas and collaborate to build a more sustainable insurance future. #SustainableInsurance #ClimateChange #RiskModeling #UnderwritingInnovation #InsuranceLeadership #InsuranceCareersMonth