Climate-related risk and opportunity assessment

Welcome to the Toitū climate-related risk and opportunity assessment tool. Stakeholders are increasingly asking organisations to conduct a climate-related risk and opportunity assessment. In some cases, the requirement to conduct a climate-related risk assessment has been written into law.

Instructions and tips to use this tool

Using this tool will take about 20 minutes. Toitū recommends working through this tool in a single session, to avoid losing any entered data. There is a progress bar along the bottom of each page.

We recommend looking through Toitū's climate-related risk guidance first and keeping it handy as you work through this process.

This session is the start of an ongoing climate risk assessment process for your organisation. By the end of this session, you will better understand climate scenarios and the physical and transition risks and opportunities your organisation may face. You will also have the start of a climate-related risk assessment specific for your organisation. This start will support engagement with colleagues and stakeholders so you can refine the assessment and adaptation plans. If your organisation already has a risk management system in place then this tool can be used to compliment that process for a climate risk assessment

Please click on the blue box "Definitions" at any time for clarity on the different types of risks, opportunities and adaptation.

What is climate-related risk?

Climate-related risks arise from the impacts of a warming climate. Risks may be directly related to the climate, or stem from how humans respond to climate change and transition to a low-emissions economy. Risk assessments aim to understand the nature and level of climate change related risks, as well as opportunities. The assessment process will guide your organisation in how to reduce and respond to these risks, and if done thoughtfully will also highlight opportunities to build resilient operations, new revenue streams, and robust strategies for decades to come.

Climate related risks are the potential consequences of climate change and the human responses to climate change. Relevant adverse consequences include those on lives, livelihoods, health and wellbeing, economic, social and cultural assets and investments, infrastructure, services ecosystems and species.

Why consider climate risks and opportunities?

Climate change affects all of us, and the impacts will only intensify as global heating continues. The process to assess potential scenarios, determine the risks and opportunities ahead, and plan how you will manage them will ensure your organisation is much more resilient in years to come.

Risk assessments aim to understand the nature and level of climate change risk. They inform our actions to minimise risks and maximise opportunities, including how we prioritise our responses. From there, we can drive targeted action and investment in adaptation. Understanding your climate risks and opportunities demonstrates company foresight and resilience to stakeholders and builds your organisation's brand as a climate leader. 

 

How to build a strong climate-related risk process

Assessing and disclosing climate risks and opportunities should not be viewed as a one-off exercise. The best results come if this process is embedded within your organisation's standard risk and strategic processes, with regular review cycles and governance.

For the first climate-related risk analysis, take a broad view; this can be improved and expanded in later revisions as your organisation and sector understand more about potential scenarios.

Some climate-related risks may be obvious and near term; others may only be clear after engaging with all the stakeholders and considering different scenarios. Some of the potential climate scenarios facing us are not well understood or known by organisations. Think of the assessment as an opportunity to engage with stakeholders and potential future stakeholders, reporting on how you assess and mitigate risks as well as identifying new growth and business opportunities.

We encourage you to refer to Toitū’s Guides for further support and resources related to climate-related risks and opportunities, including how it fits into national and voluntary commitments

Understanding possible climate scenarios

Climate change scenarios are a way of describing possible future changes to climate variables and hazards. There are a range of future climate scenarios based on the level of global heating that occurs. The scenarios help guide thinking on the severity and likelihood of impacts on operations, facilities, value chains and communities.

Scenario analysis is a process used by global organisations to systematically explore the potential impacts under a range of plausible futures. The analysis helps organisations explore the climate-related risks and opportunities they may face in order to enhance the resilience of their business model and strategy.

Toitū certification asks clients to consider three climate scenarios in their risk assessment. We recommend aligning with the guidance to conduct an exploratory analysis for three scenarios as described below.

 

Recommended climate scenarios

This approach uses guidance developed by the Intergovernmental Panel on Climate Change (IPCC). A standard set of scenarios are used to ensure that starting conditions, historical data and projections for GHG emissions are employed consistently across the various branches of climate science.

Representative Concentration Pathways (RCP) were adopted by the IPCC and are a greenhouse gas concentration trajectory. RCPs refer to the models that illustrate the future of potential carbon dioxide emissions.

Three recommended climate scenarios are as follows:

Hot House World/RCP 8.5: Emissions continue to rise throughout the 21st century. This scenario is generally taken as the basis for worst-case climate change scenarios with minimal change to current behaviour and practices.

Disorderly/RCP 4.5: Described by the IPCC as an intermediate scenario, in this world emissions peak around 2040, then decline. RCP 4.5 is the most probable baseline scenario and includes abrupt and stringent decarbonisation policies enacted in the 2030s. According to the IPCC, RCP 4.5 requires that emissions start declining by approximately 2045 to reach roughly half of the levels of 2050 by 2100. It also requires that methane emissions stop increasing by 2050 and decline somewhat to about 75% of 2040 levels. RCP 4.5 requires negative carbon dioxide emissions (such as absorption by trees).

Orderly/RCP 2.6: A "very stringent" pathway. According to the IPCC, RCP 2.6 requires that emissions start declining by 2020 and go to zero by 2100. It also requires that methane emissions go to approximately half the levels of 2020. RCP 2.6 requires negative carbon dioxide emissions (such as absorption by trees).

Global Warming Increase Projections

The following table and graph illustrate the projected heating in the different scenarios. 

	Projected temperature range during 2046-2065	Projected temperature range during 2081-2100
Scenario	Mean (range) deg C	Mean (range deg C)
Hot House World - RCP 8.5/SSP 5	2.0 (1.4 - 2.6)	3.7 (2.6-4.8)
Disorderly - RCP 4.5/SSP 2	1.4 (0.9 - 2.0)	1.8 (1.1 - 2.6)
Orderly - RCP 2.6/SSP 1	1.0 (0.4 - 1.6)	1.0 (0.3 - 1.7)

 

Image source (p26)

 

Time Horizons

Climate risk assessments need to consider timeframes most relevant to your organisation. The outcomes of the scenarios change with time as the climate models play out. After the middle of this century, the scenarios quickly diverge, revealing a wide range in potential impacts of climate change. In the hot house scenario temperatures continue to climb out to 2100. 

Three timeframes are recommended for assessing risks (and opportunities) from climate change, 2030, 2050 and 2100. For the purposes of this climate risk assessment we would like you to assess the risks for each of the three described scenarios in the timeframe most relevant you organisation. For your first climate risk assessment you may want to use a shorter time horizon such as 2030 and consider a longer time horizon as you mature your climate risk assessment. 

 

New Zealand Scenarios

In New Zealand there are some very specific descriptions of climate change scenarios and some national maps showing impacts on temperatures and rainfall in the future under the different scenarios. As you evolve your analysis and plans, considering regional and local variations will support specific and practical scenarios and plans.

Image source (p64)

As you evolve your assessment, you may also find these regional resources useful:

• New Zealand report on Our Atmosphere and Climate 2023 (joint publication from Ministry for the Environment and Stats NZ):
• NIWA climate change scenarios for New Zealand regions

Let's get started with your assessment

Now we are going to start the exercises of considering risk and opportunities for your organisation. This will lead to identifying some of the risks and opportunities relevant to your organisation and an assessment of them. For a reminder of the definitions of the terms such as "physical risks" remember to click on the blue "Definitions" bar.

Do you or does someone in your organisation have knowledge of climate-related risk assessments and scenario analysis?

Has your organisation conducted a climate-related risk assessment?

For example, you may have listed physical and transition risks, then used a risk assessment matrix to categorize and rank the risks and opportunities.

Could your organisation be at physical risk from extreme weather events and climate change?

Hazards include extreme and changing weather such as rise in temperature, rise in sea level, exposure to extreme weather events (wind, rain/snow/drought, temperature).

Select which of these hazards could be a direct physical risk to your company or organisation. For each selection, please include a description of the impact in two or three sentences, for example if you selected flooding, the impact could be building or infrastructure damage or crop losses. As an example an organisation that grows fruit might write "Flooding could result in crop harvest loss, soil erosion, silt build up and reduced available land for future crops."

Various tools and maps are becoming increasingly available to help assess these hazards. An example regarding sea level rises is shown here: www.searise.nz

Select which of these could be an indirect physical risk to your company or organisation.

For each selection, please include a description of the impact in two or three sentences. For example if you selected supply-chain, impact could include sales and cashflow delays, loss of clients.

Will your company sustain transition impacts from extreme weather events and climate change?

Transition impacts include climate policy change (domestic and international), increasing price of carbon, decarbonisation, new technology, changes in consumer preference, climate migration, reputational risk.

Select which of these transition risks are applicable to you. For each selection, please include a description of the impact, for example if you selected carbon price, impact could include sales price increases.

Climate opportunities can include new product lines, reduced heating costs, lower climate risks than peers and a wealth of resilience initiatives.

Select which of these opportunities arising from climate change could apply to your company or organisation. For each selection, please include a description of the opportunity.

Governance and communication of the climate risk and opportunity assessment is an important consideration for an organisation. Stakeholders will want to know that a climate risk assessment has been conducted and reviewed across the organisation. Take the time to think about who the project team participants in your company or organisation are and the management/owner of the process to provide organisational leadership and support.

Once you have completed the exercise using this tool it will deliver a draft risk assessment workbook. It is then important to meet collectively with your climate risk team and stakeholders to further define and add details to the assessment. Climate risk touches many parts of an organisation. Functions that may be in the working group could include operations, legal, communications, finance, sustainability, environmental etc.

A climate risk assessment is not a one off exercise; it should be repeated at least annually as climate risks to the organisation may change as the organisation and people change.

Risk & Opportunity Matrix

A risk assessment matrix is used to assess and rank the identified risks. This allows you to prioritise adaptation, mitigation and preparation plans to the highest risks, measured by their consequence and probability. A risk assessment matrix is a structured way of identifying impacts, adaptive responses and vulnerability to climate change. The likelihood of a climate-related impact occurring can be identified as either almost certain, likely, possible, unlikely or rare. The objective in using this method is to identify and place each risk in this matrix according to the likelihood that each will occur, and the severity of the outcome if they did occur. This is a semi-quantifiable method as it produces relative risk rankings that can take a finite number of discrete levels. An example of a risk matrix is provided below and the risk table shows how the hazard of a rise in temperature can be assessed as a direct physical risk.

A similar process and matrix can be sued for identifying climate-related opportunities. An opportunity matrix can help assess and provide focus on prioritising and understanding the impact of these opportunities

If your company already uses a matrix to assess risk and you and your leaders are familiar with it, we encourage you to use or adapt the tool you already have.

Upon completing the identification of the risks and opportunities using this tool, the next step is to take the time to assess the risks using the risk matrix. This can be done now or at a convenient later time as a team to collectively agree and discuss the risks and opportunities. The final outcome is to populate the risk table with an assessment of each risk and opportunity under the climate scenarios. The risks and opportunities are rated as critical, high medium or low.

Please note - the examples below will be on the 'Risk & Opport. Matrix' tab of the workbook you'll download in a couple more steps so you can explore them in detail.

Risk Matrix

Risk Impact or Consequence

Risk Rating

Opportunity Matrix

Opportunity Impact or Potential

Opportunity Rating

Adaptation/Mitigation actions to the risks faced by your organisation

Examples of adaptation or mitigation actions can be separated into different categories including for example, organisational capacity, asset management, emergency management and response, staff health and wellbeing. Some examples of adaptation and mitigation practices are shown below.

Include members of sustainability teams as part of the contract and tender review process.

Divesting of certain investments or product lines

Build capacity of executive levels and the board on climate risks and adaptation through regular briefings

Establish an internal framework for informing decision-making for future planning, leveraging risk management processes, and supported by ongoing monitoring and evaluation.

Complete a review of asset management plans to identify opportunities for embedding climate change risk

Develop a set of consistent design standards that are integrated into tendering, providing consistent minimum standards for climate adaptation and alignment to capital spend thresholds.

Review infrastructure design parameters around water capture to cope with increased intensity of rainfall, (e.g. retention areas to utilise stormwater during dry periods, sustainable stormwater management).

Review asset management plans to identify vulnerable essential services (e.g. transport, telecommunications and water infrastructure) and determine assets at risk from climate hazards.

Ensure appropriate design for new buildings (e.g. solar design features such as properly shaded north- and west-facing windows, minimal west-facing windows, or provision for effective ventilation).

Build innovative and effective infrastructure that has capacity to withstand flooding.

Liaise with insurers to demonstrate proactive measures to reduce flood risk and other material climate impacts.

Increase staff capacity to support during crises and work with first responders to review access to assets.

Investigate flexible working conditions to allow staff to vary work hours to accommodate extreme events.