By: Ammar Rahman: Head of Global Climate and Sustainability Solutions at Munich Resilience Solutions
Combating the effects of climate change is the most pressing challenge of our time. More severe and frequent heatwaves, floods and droughts are just some of the risks that communities, governments and industries must prepare for to protect their people and operations now and in the future. And according to recent research by the Economist Institute and sponsored by Zurich Insurance, four out of five people in 10 major global cities believe their cities are not adequately prepared for climate-related risks.
As these risks become increasingly complex and interrelated, they require a more comprehensive approach. To create the necessary insights, organizations must rely on high-quality data to assess climate threats and measure their financial and operational impacts.
Climate data, which is starting to be systematically integrated into risk management scenarios, helps companies identify and assess risks across the entire organization. Measuring the potential financial impact of climate change helps prioritize adaptation actions needed to enhance resilience in high-risk locations. And building these decisions on reliable data and financial loss models increases confidence in the effectiveness of efforts and investments to reduce major climate gaps and risks.
The increasing focus by regulators, communities and global institutions on climate risks, and the evolution of disclosure requirements, has also increased the demand for high-quality climate data. Regulation is expanding globally, as is the case with the European Union's Corporate Sustainability Reporting Directive (CSRD), which will result in an almost fourfold increase in the number of companies required to disclose their climate risks.
Company-wide risk management
While CFOs and sustainability managers may find themselves on the front lines of sustainability reporting regulations, the responsibility for fostering resilience lies with the entire organization. This requires strategic management to anchor this thought into day-to-day operations and future planning.
For example, insurance managers must ensure that there is adequate coverage, while risk managers need to ensure business continuity and supply chains. Operations and site managers play a crucial role, just as senior management with ultimate responsibility for long-term business success does.
The use of forward-looking data as part of an integrated approach to climate risk assessment makes the results relevant to all stakeholders. This requires data with the following attributes to make confident decisions:
Consistency: Companies should consider risks as they are today, and how they evolve over time under different climate scenarios. The consistency of the data that includes the latest observations and modeling provides a comprehensive view of the physical vulnerability to climate change.
Transparency: Stakeholders need to understand the data used in risk assessment. Transparency about how data is developed and its limits enables organizations to ensure that resources are spent in areas most in need of adaptation.
Flexibility: Data should capture the complex relationship between risk. Some risks may require multiple measures; For example, when assessing the impact of heat, different indicators should be used to analyze its impact on operations, personnel, and equipment.
Importance of Data Quality
Alongside climate data, high-quality data on an organization's assets and suppliers are needed to develop loss scenarios and measure potential financial impact. The analysis of multiple scenarios allows for a more effective risk assessment and a clearer understanding of the most efficient mitigation measures.
Given the uncertain nature of forward-looking statements that rely on assumptions of human behavior, geopolitics, and technology, multiple scenarios are essential to understanding the potential scope of risks that may evolve over time.
Innovative Solutions: Climate Spotlight
To address these challenges, FSOM has developed Climate Spotlight, an interactive software-as-a-service (SaaS) platform that provides forward-looking risk analysis. These analyses are based on 4 different scenarios for the Intergovernmental Panel on Climate Change (IPCC) through 2100, helping organizations to detect their exposure to risk, meet reporting needs, and make confident investment decisions.
This tool uses Zurich’s climate data, the same data that underpins the Group’s insurance and investment businesses, and is also used to calculate solvency under the Swiss solvency system (SST).
In conclusion, while climate risks will increase in the coming years, the depth of our data and how it is applied in decision-making and strategic planning will help push us towards a more resilient future.
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