Navigate Climate Risks: A Guide for Businesses - BDO

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Climate Risk Assessment

In 2024 alone Belgium has been affected by flooding, extreme temperatures, extreme amounts of rainfall and extreme weather events like rainstorms and tornadoes. According to the European Environment Agency (EEA), extreme weather and climate-related events are costing Europe billions of euros each year. For Belgium alone, the estimated cost between 2000 and 2023 is between 12 and 15 billion EUR. With climate change only getting started, the financial effects for many companies in the coming years and decades will become increasingly disruptive.

This increasing frequency and intensity of extreme weather events have made it imperative for companies to assess and manage their climate-related risks. The latest guidelines from the Task Force on Climate-related Financial Disclosures (TCFD) emphasise the importance of understanding these risks to make sure your business withstands the test of time.

While the legislative landscape continues to evolve, today’s risks and changing climate are impacting companies in many ways. That’s why creating insight into the effect climate change may have on your organisation is the first and most important step.

Time to learn all you need to know to get started with climate risk assessment and how it can benefit your business while enhancing its resilience.

What is climate risk assessment?

Climate risk assessment is the process of identifying, analysing, and evaluating the potential impacts of climate-related risks on your company’s operations, assets, and overall business strategy. These risks can be categorised into two main types:

Physical risks: these include acute risks from extreme weather events (e.g., floods, hurricanes) and chronic risks from long-term climate changes (e.g., rising sea levels, prolonged droughts).
Transition risks: These arise from the shift towards a lower-carbon economy, including regulatory changes, market shifts, and reputational impacts related to climate action.

By understanding these risks, you can develop strategies to mitigate potential impacts, making sure your company stays on track in terms of sustainability and business activity.

Why invest in climate risk assessment?

By performing a climate risk assessment, you’re not just compliant with regulations. You also create additional strategic value. Below are some of the benefits beyond risk management that can have a significant impact on your company’s performance, efficiency and stakeholder relations.

1. Pinpoint your vulnerabilities and existing resilience

You can’t manage what you don’t understand. Climate risk assessment gives you insights into how climate-related factors can affect your business, revealing vulnerabilities and opportunities that would otherwise go unnoticed. Thanks to these takeaways, you can make informed decisions, develop proactive strategies to mitigate impact and better allocate your resources.

2. Stay ahead of customer and investor requirements

As society is feeling the consequences of climate change, supply chain and investment expectations are changing too. For example, insurance companies and banks are starting to assess the vulnerability of their portfolio to climate risks. By preparing now, your company can avoid future financial obstacles such as penalties or no access to funding while maintaining investor confidence at the same time.

3. Boost your brand reputation and meet stakeholder expectations

By proactively assessing and being transparent about your climate risks, you show to all your stakeholders (customers, financial institutions, etc.) that you are a reliable party with credibility and resilience. This will boost the reputation of your brand in the market and build trust. This transparency is becoming crucial in public procurement and investment decisions.

4. Strengthen your supply chain resilience

One of your company’s parts most vulnerable to climate risks is your supply chain. Just think about the disruptive impact of climate on your operations and profitability. A climate risk assessment helps you evaluate your supply chain vulnerabilities, identify at-risk suppliers, and implement strategies to enhance your resilience. By taking into account climate factors into your supply chain management, you can ensure long-term stability and competitiveness for your business.

Climate risk assessment in 4 steps

Step 1: As-is assessment

Determine the scope of the assessment, including which operations, parts of the value chain and assets to evaluate.
Investigate historical data and previous impacts related to climate change
Set clear objectives for the assessment based on business needs and stakeholder expectations.

Step 2: 2-Scenario analysis

Selection of two climate change scenarios & time horizons (e.g., based on lifespan assets).
Assess predicted changes in climate risks for own operations and value chain by latest climate models.

Step 3: Analyse potential impacts

Report with all assessed climate risks and related Impacts, Risks, Opportunities (IRO’s).
Assessment for each part of your value chain structured per climate scenario, time horizon & climate risk.

Step 4: Strategy resilience

Create actionable strategies to address identified risks, prioritising based on potential impact and likelihood.
Integrate these strategies into your business planning and operational processes to enhance resilience.

A well-performed climate risk analysis can, through thorough scenario-analysis, even estimate the value at risk for your organization. This makes it possible to evaluate the business case of different adaptation strategies within your organization. This analysis can be made from historical data with climate modeling and financial modeling.

Want to know more? Reach out and we can show you our latest use case!

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Climate risk assessment is just one strategic move in your sustainability journey .

You'll find additional proven approaches and actionable insights in our comprehensive ESG white paper, where we outline the complete roadmap for turning compliance challenges into competitive advantages.

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How can BDO help?

Our ESG experts can assist your organisation with a pragmatic and practical approach for identifying climate risks and developing the necessary strategies. Our services range from performing a full analysis to coaching, and from making a high-level assessment to an in-depth impact of climate impacts on the value drivers of your organisation. Feel free to reach out to discuss all the possible solutions we have in store for you!

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