Climate change risk: Assessment, management, and financial impact

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On the event of Global Day of Action, campaigners, environmental groups, and activists in various countries gathered to demand practical solutions against all the risks posed by climate change. The objective of this protest is to awaken multinational organizations, governments, and big corporations via pledges, social media awareness, marches, etc., so that they understand their duty towards the health and well-being of the planet. To achieve this goal, they annually mobilize and spread awareness about climate change risks that can be detrimental for the generations to come.

In this article, we attempt to give a comprehensive insight into the management, assessment, and financial impact of the risks of climate change that will eventually come to the forefront in a few more decades if they are ignored or left unattended. Let us begin with the assessment and management stage.

Analyzing and Assessing Multiple Risks of Climate Change

When one thinks of bringing about a change in the environment, it comes across as a broad and abstract project that can overwhelm people, suppressing their will to take action in the first place. To rectify this problem, leading researchers and scientists are coming up with a multi-layered approach that breaks down the sustainability project into simple steps.

Therefore, before we start designing solutions to mitigate climate change risks, it is imperative to understand where things are going wrong and to what extent. Once the severity of the situation is adequately understood, it will be easy to devise a plan of action that people across the globe can follow.

Impacts, Exposure, and Environmental Vulnerability

  • According to various reports and surveys conducted on climate change, factors like melting snow and changing precipitation are disrupting the natural flow of hydrological systems, affecting natural resources in terms of quality and quantity.

  • a notable change is visible in the seasonal activities, geographical ranges, and migration patterns of many marines, terrestrial and freshwater species on an aquatic level.
  • And lastly, the global risks of climate change have also led to a negative impact on crop productions, human health, and several natural calamities like cyclones, droughts, heatwaves, wildfires, floods, and more.

Managing Risks of Climate Change by Building Resilience

As mentioned above, effective management of deteriorating environmental conditions is only possible if sustainable plans are structured according to the present ecological vulnerabilities. So, the entire process of climate change risk management can be broken down into four broad categories:

  • Mitigation: Attempts to lower carbon and greenhouse gas emissions.
  • Adaptation: Equipping society to cope with all the changes caused by climate changes by building strong resilience.
  • Geoengineering: Voluntary attempts to counteract multiple impacts of greenhouse gas emissions.
  • Awareness: If every person actively attempts to learn about the effects of climate change, it aids the entire process of climate change risk management.

However, decreasing carbon footprints can play a significant role in lowering society’s contribution to greenhouse gas, saving the atmosphere from further damage. This will help regulate the rapid rate of change that is coming about in the climate and bring all societal impacts under a manageable radar.

To effectively manage the risks of climate change, we need to start with categorizing carbon reduction approaches into several categories like research and development, deployment of new technologies, conservation, regulation, public awareness, and more. Hence, once we comprehensively design our plan of action, we might witness impactful results across several sectors of society.

Financial Impact of Climate Change Risks

For a layperson with minimal knowledge about the financial sector, it is difficult to understand how climate change negatively affects balance sheets, bank operations, and the global economy. In simple terms, climate emergency gives rise to various abrupt adjustments in several economies; for instance, when we speak of mortgage portfolios in nearshore regions, there is always a risk of sudden climatic outrages like heavy rains and flooding.

This creates a need for massive amounts of financial products and capital to help in building economic and climatic resilience while making new demands for banks and other financial services. For the time being, regulators are actively stepping up, and clients, civil society, and investors are looking for novel adaptation and mitigation techniques to reduce the financial impact of global warming and other climate change risks. Below we have mentioned some of the many pointers that can mitigate the effects of climatic impact on the financial front:

  • Instead of approaching climatic degradation from a CSR perspective, it would be better if the financial sector approaches it as a threat that can spiral into financial risks giving way to revised regulations, high financial stakes, and increasing external pressures.
  • While drafting their plans, banks should incorporate climatic risk management strategies into their annual financial frameworks. This will help them handle any unforeseen climatic disruption without causing any significant damage to the overall operations.
  • Also, since banks can be marked as a location accessible to every person from most spheres of society, they carry the potential to carry out climate awareness surveys which can be beneficial for local, national, and international climatic organizations.

Climate Change Risk Management with Schneider Electric

We aim to bridge the gap between progress and sustainability in the most efficient way.

Under our climate risk services, our team actively joins hands with prestigious organizations to carry out a climate risk assessment which is crucial in developing and implementing strategies that disclose all the subdued climatic risks. In addition, we carry a diverse portfolio for climate action solutions like EcoStruxure Resource Advisor, renewable energy procurement, supply chain decarbonization, and more.

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