Best Practices for Mitigating Climate Risks for Businesses in 2023

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Mar 21, 2023
By Arbol

The Importance of Mitigating Climate Risks

These days, many organizations are looking to lighten their carbon footprint to do their part in the fight against climate change. This is commendable and should be encouraged; however, businesses should also study how increasingly severe and frequent climate events like droughts and hurricanes can affect their operations across their supply chains. Any company that wants to safeguard its assets and stem financial losses must explore its risk-mitigation options thoroughly.

Source: World Meteorlogical Organization (WMO)

Climate risks come in many forms, including physical, transition, and liability risks. By implementing best practices for curbing these risks, businesses can limit their exposure to financial and reputational damage and build more sustainable practices..

Physical Climate Risks: Best Practices for Mitigation

Physical climate risks refer to the real-world consequences of climate change that directly impact the environment and society. Wildfires, flooding, and severe storms are often catalysts for these sorts of threats which can lead to property damage, ecological instability, and disruptions in local economies.

Businesses can mitigate physical climate risks by implementing best practices such as:

  • Conducting a risk assessment to identify physical climate risks and prioritize measures to address what the data points to.
  • Investing in physical infrastructure to protect assets, like flood barriers, stormwater drainage systems, and backup power sources.
  • Diversifying supply chains to reduce the risk of disruptions from extreme weather events.
  • Developing an emergency response plan to prepare for and respond to extreme weather situations.

Transition Climate Risks: Best Practices for Mitigation

Transition climate risks are rooted in the indirect effects of climate change, like regulatory and market shifts. Businesses can blunt transition climate risks by:

  • Staying apprised of climate-related regulations and market trends to ensure compliance and get ahead of the competition.
  • Investing in sustainable products and services that align with customers’ and investors’ values.
  • Building an agile supply chain that's not overly reliant on high-carbon products or services.
  • Developing a plan to reduce greenhouse gas emissions and lower energy costs through renewable and energy-efficiency measures.

Liability Climate Risks: Best Practices for Mitigation

Liability climate risks refer to the legal and financial risks associated with climate change, for example, lawsuits or insurance claims. Companies can mitigate liability climate risks by:

  • Ensuring compliance with climate-related regulations to avoid fines, legal action, and reputational damage.
  • Conducting a risk assessment to identify liability climate risks and prioritize measures to mitigate these risks.
  • Building a comprehensive climate risk management strategy that includes specific goals, targets, and timelines.
  • Investing in insurance coverage for climate risks to reduce financial exposure.

The Importance of Taking Action to Mitigate Climate Risks

At present, it’s estimated that climate change has already affected 70% of all economic activity worldwide. Some of those effects are bound to be less obvious than others since an increase in the price of raw materials on one continent can affect the price of goods and services on another. Any business that wants to shore up its operations against future uncertainties will want to look into mitigating its exposure to climate risk sooner rather than later since emergencies rarely afford the luxury of time.

Arbol is here to help!

Our technology and data platform helps clients to understand the climate risks they face and to assess the potential direct and indirect financial impact stemming from those risks. To learn more how we can help your business, please don’t hesitate to reach out to us:

Companies must understand that mitigating climate risks is an ongoing process that requires diligent efforts and a long-term commitment. By staying apprised on the latest trends in climate risk management, organizations can do their part as good corporate citizens to build a more favorable, more humane future.