What is Climate Risk?

Climate risk refers to the financial, operational, or physical risks that climate change can create for businesses, communities, and economies. These risks can come from both environmental impacts and the global transition away from fossil fuels.

How does it work?

Climate risks are generally divided into two categories:

• Physical risks: Damage from extreme weather, flooding, wildfires, droughts, heat waves, and sea-level rise.
• Transition risks: Financial and business risks tied to policy changes, new regulations, shifting consumer behavior, lawsuits, or changing markets during the transition to a lower-carbon economy.

Companies assess climate risk to better understand vulnerabilities and prepare for future disruptions.

Is it “good”?

Knowledge is power, so yes. Understanding climate risk helps organizations make smarter long-term decisions and build resilience. Investors, insurers, regulators, and consumers increasingly expect companies to evaluate and disclose these risks.

Common in:

• Finance and insurance
• Real estate and infrastructure
• Agriculture and food systems
• Supply chain management
• Corporate strategy and ESG reporting

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