Why companies should address climate risks

Climate risks are becoming increasingly common terms in the field of sustainability. For companies, they are not an abstract topic — they represent real events that can significantly affect operations, assets, and financial performance. Risk management in general helps businesses anticipate potential threats and prepare steps to mitigate their impacts. Ignoring risks is like riding a bike with your eyes closed — relying on luck is short-sighted.

Why climate risks are intensifying

Today’s world is exceptionally dynamic, and the effects of climate change are becoming increasingly pronounced. Extreme events are on the rise, disrupting everyday life as well as business operations. Companies that overlook these risks are, in fact, planning based on incomplete information. Addressing climate threats is therefore a rational and strategic step.

Two types of climate risks

In order for a company to correctly determine what threatens it, it conducts a climate risk analysis. This analysis distinguishes between two main categories:

1. Physical risks

These are the direct impacts of climate change on specific locations and assets.

They are divided into:

• Acute: severe storms, flash floods, extreme heat, wildfires‍
• Chronic: long-term temperature rise, decreasing water availability, rising sea levels

For example, Ørsted reports that extreme weather is increasingly affecting the performance and maintenance of their offshore wind farms. (Source: https://cdn.orsted.com/-/media/annual2024/orsted-annual-report-2024.pdf?rev=e2d1485c254f4274aa6d7752c8947560)

2. Transition risks

They stem from economic, technological, and legislative changes that respond to the climate transition. These include, for example, new regulations, carbon fees, shifts in customer behavior, or investment flows. Sometimes they can even represent opportunities—for instance, Volkswagen emphasizes that the shift to electromobility is key to its future competitiveness. (Source: https://www.volkswagen-group.com/en/publications/more/group-sustainability-report-2023-2674)

Climate Risks and ESRS Requirements

The ESRS E1 standard requires not only a description of physical and transition risks, but also their assessment, scenario analysis, and the impacts on strategy and the business model.

Risk analysis is therefore not just an obligation, but a tool that helps identify weak spots and plan steps to increase the company’s resilience.

How climate risk analysis works

The scope of the assessment depends on the type of business, the structure of assets, and the level of exposure to risks.

The process usually includes:

1. Identifying key locations and activities.
2. Assessing physical and transition risks using climate scenarios, hazard maps, and expert sources.
3. Determining the level of risk and its potential financial impacts.
4. For the value chain, identifying so-called hotspots — areas with elevated risk.

Large or highly exposed companies often also use quantitative models and advanced analytical methods.

A strategic advantage, not a mere obligation

Climate risks today affect everything—from operations and supply chains to reputation and access to capital. Investors, insurers, and customers evaluate companies based on how well they can respond to climate change.

Systematic work with climate risks therefore enables companies to:

• protect assets and ensure business continuity,
• strengthen competitiveness,
• identify new business opportunities in time.

A well-executed climate risk analysis is becoming an essential part of modern corporate management. It is crucial not only for operational resilience, but also for reputation, access to capital, and relationships with investors and insurers.

We covered the topic of climate risks in detail in an article for the Ekonews platform.

Take advantage of our Climate Risk Analysis service

We offer a professionally prepared Climate Risk Analysis in accordance with CSRD/ESRS, giving you a clear overview of how both physical and transition risks may affect your operations, supply chain, and long-term competitiveness. You will gain a clear understanding of the major threats, impact scenario models, and specific recommendations on how to reduce risks and prepare your company for future challenges. The service includes an initial consultation, data collection, analysis, and a final report.

Want to strengthen your company’s resilience? Get in touch — we’ll be happy to advise you.

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