Climate risk refers to the potential negative impacts of climate change on economic, social, and environmental systems. It encompasses two primary categories:
- Physical Risks: These are risks associated with the direct physical impacts of climate change, which can be further divided into:
- Acute Physical Risks: Event-driven occurrences such as hurricanes, floods, wildfires, and other extreme weather events that can cause immediate and severe damage to infrastructure, disrupt supply chains, and affect human health.
- Chronic Physical Risks: Longer-term shifts in climate patterns, including sustained temperature increases, sea-level rise, and persistent droughts, which can lead to gradual but significant challenges for various sectors.
- Transition Risks: Risks arising from the process of adjusting to a lower-carbon economy. This includes:
- Policy and Legal Risks: Implementation of new regulations or litigation related to climate change that can impact business operations.
- Technological Risks: Disruptions caused by the development and adoption of new technologies aimed at reducing emissions.
- Market Risks: Shifts in supply and demand as consumer preferences evolve towards sustainable products and services.
- Reputational Risks: Potential damage to an organization's reputation due to perceptions of inadequate response to climate change.
Understanding and managing climate risk is essential for organizations to build resilience, comply with regulatory requirements, and contribute to global efforts in mitigating climate change.
