Getting started with physical climate risk assessments
Climate change is having a profound impact on the planet, leading to more frequent and severe weather events, rising sea levels, and changing temperature patterns. These changes pose significant risks to businesses, infrastructure and communities. To understand, report on and address these risks, companies, financial institutions, governments and organisations need to conduct physical climate risk assessments.
What's the best way to get started?
Step 1: Understand the need
The first step in embarking on a physical climate risk assessment is understanding why it's necessary.
Climate change can disrupt supply chains, damage infrastructure, and affect asset values. Recognising these potential impacts is crucial to making informed decisions about climate resilience.
Step 2: Define the scope
Next, you need to define the scope of your assessment.
This involves identifying which assets, locations, and operations are most vulnerable to climate risks. Consideration should be given to both current and future vulnerabilities, as climate change is an evolving challenge.
XDI’s rapid, low-cost screening solutions can help with this and are a good place to start.
Step 3: Data collection
Data is the foundation of any climate risk assessment.
Access to reliable, up-to-date data is critical for accurate risk assessment. But like all modelling, it’s complicated. That’s why an experienced, reliable data provider is so critical.
Step 4: Data analysis
Now you have the data, what is it actually telling you? And how do you act on it?
As your partner on the physical climate risk journey, XDI is here to help you every step of the way.
Our analysis quantifies the cost of extreme weather and climate change impacts to physical assets.
We deliver our results the way you want it: PDF, CSV, on-demand, APIs, even through visualization tools such as XDI Globe. Using the metrics you need to make decisions, in formats that facilitate integration with reporting, disclosure and presentation to stakeholders.
We even make the analysis easier to understand through our online data visualization tool, XDI Globe, which you can also use to test-run different adaptation options.
What's the difference between transition and physical risk?
The risks created by climate change can be both physical and transitional.
The physical risks arise from outcomes that are likely to reduce the value of certain assets and income streams such as more frequent and intense extreme weather events and higher than average temperatures.
Transition risks are associated with changes in policy, technology and behaviours that relate to the process of moving to a less emissions-intensive economy.
XDI specialises in physical climate risk analysis, however we also work with partners who focus on transition risk.
What is physical
These impacts pose risks to operations, credit worthiness, cashflow, asset value, operating costs, markets and business confidence.
Use physical climate risk analysis to inform future strategies, mitigate risk, and adapt to a changing world.
XDI is an international, independent provider of physical risk analysis with an established network of clients and resellers.
XDI analysis is powered by the award-winning Climate Risk Engines, tried and tested in the market since 2007.
XDI’s standard reports present physical risk data in different packages for different sectors or sections of an organisation. Pick from a list depending on your clients’ needs.
Complex problems need clever solutions. XDI works closely with resellers to support bespoke solutions for your client.
What else do I need to know?
Climate scenario analysis
Climate risk assessments involve analysing different climate scenarios to understand potential impacts. In particular, understanding the risks associated with different emissions pathways is essential. By examining a range of scenarios, you can assess a wide spectrum of potential risks.
In our modelling, we offer scenarios that include time series of emissions and concentrations of the full suite of greenhouse gases known as Representative Concentration Pathway (RCP).
Read our FAQs for more.
Adaptation and mitigation strategies
Factors such as the magnitude of risk, potential consequences, and the ability to mitigate or adapt to the risk should be considered when prioritising actions. Mitigation and adaptation actions may include upgrading infrastructure, diversifying supply chains, or changing business processes to enhance resilience to climate-related risks.
Climate risk assessments are not just an internal exercise. Engaging with stakeholders, including investors, customers, and regulators, is essential. Transparency and communication regarding climate risk management efforts are becoming increasingly important.
Reporting and Disclosure
To build economic resilience, many governments are implementing mandatory climate risk reporting, pushing businesses and financial institutions to identify and act on their climate vulnerabilities.
A variety of frameworks are used for climate risk reporting and your jurisdiction will determine which ones apply to you. Most current disclosure mandates align with ISSB guidelines.
Integration with ESG Strategies
Climate risk assessments should be integrated into broader Environmental, Social, and Governance (ESG) strategies. Addressing climate risk aligns with broader sustainability goals and can drive positive reputational and financial outcomes.
Ongoing monitoring and review
Climate risk is a dynamic challenge, and organisations must continually monitor and review their risk assessments and strategies. Regular updates and adjustments are necessary to account for new data, changing climate conditions, and evolving business circumstances.
XDI works with both client-provided data and publicly sourced data. XDI has the ability to identify material hazard(s) impacting the company, with coverage of approximately 16,000,000 owned, leased and operated assets, for over 15,000 listed and unlisted companies.
XDI’s priority is to provide long-term solutions to its clients. Our goal is a more climate-resilient community. Our approach is to work with you over the course of your climate risk journey.
Typically, a portfolio will contain around 5-10% of assets at high risk.
XDI has analysed over 200,000 hospitals around the world for risk of damage from 6 different climate change hazards from 1990 until the end of the century. The risk arising from two different emissions scenarios (i) RCP 8.5 (around 4.3 ºC) and RCP 2.6 (1.8 ºC or under) was compared. The analysis was published ahead of the inaugural Health Day at the COP28 UN Climate Conference.
Our vision is not just to identify physical climate risks, but to mitigate them.
XDI can help you develop business plans for adaptation, helping you move from risk to resilience.
Talk to us today to find out more.