Module 2a Assessing Climate Change Risks Country, Date, Presenter

Objective The objectives of this module are to: gain an understanding of the concept of risk learn about the different types of risk and their importance comprehend the basics of an risk assessment and why it matters to businesses ToC - Module 2a

Businesss and Climate Risk Conceptualising Climate Risk Outline / Agenda Businesss and Climate Risk Conceptualising Climate Risk Risk Assessment ToC - Module 2a

I. Businesses and Climate Risk ToC - Module 2a

Managing the risks and opportunities of climate change III. Businesses and Climate Risk – Adaptation as a form of risk management Climate change adaptation = Managing the risks and opportunities of climate change ToC - Module 2a

Discussion – Concepts and relevance of risks Are you familiar with this concept ? Which risk management tools do you use in your work with SMEs? What is the relevance of climate risk for them? ToC - Module 2a

III. Businesses and Climate Risk – Overview of different types of risks Risks of climate change for businesses Source: McKinsey 2015 ToC - Module 2a

III. Businesses and Climate Risk – Overview of different types of risks Source: C2ES 2013 ToC - Module 2a

III. Businesses and Climate Risk – Overview of different types of risks According to a study by KPMG (2008), these are the most important types of business risk mentioned in relevant scientific research: Source: KPMG 2008 ToC - Module 2a

III. Businesses and Climate Risk – Overview on different types of risks Source: KPMG 2008 ToC - Module 2a

III. Businesses and Climate Risk – Risks New risk: Climate Change SMEs face a range of risks and opportunities Financial Organisational Legal and regulatory compliance Reputation Operational etc… Negative and positive consequences on the business Company strategy, processes and assets affected Cost benefits and new market opportunities Need for a structured approach on how to assess and mitigate climate risks (Climate Expert) ToC - Module 2a

II. Defining Risk ToC - Module 2a

Task – What is risk? How would you define risk? Please think of a short and concise definiton of risk and write in on a notecard. Everyone shares his or her risk definition Discuss the differences and similarities Business risks from climate change are materializing rapidly, and it is fundamental to the success of companies to scrutinize how the consequences of CC will affect their operations, and plan for the risks that will have a significant impact on them ToC - Module 2a

II. Defining Risk – Two types of risk terms Company Water quantity (water risk) Physical assets (physical risk) Financial assets (financial risk) Risk affecting... Risk resulting from... Impact (flood, drought, heavy rain risk) Regulation (regulatory risk) Other (…) risk Climate change phenomenon (climate change risk) ToC - Module 2a

II. Defining Risk – Terminology Risk is often defined as probability (or likelihood) of occurrence of hazardous events multiplied by the magnitude of negative effects if these events occur. Risks refer to the potential, when the outcome is uncertain, for adverse consequences on lives, livelihoods, health, ecosystems, economy, business, social activities, infrastructures, constructions, etc. Source: Adapted from IPCC 2014 Source: UKCIP 2003 ToC - Module 2a

II. Defining Risk – Likelihood and Magnitude The probability or likelihood can be determined by looking at how frequent a climate event has occured in the past and then predicting its occurrence for the future. The magnitude refers to the degree of the negative effects on the business. It can be determined by identifying which areas of a company (e.g. buildings, employees, etc.) are affected and then assessing how crucial they are to the company. ToC - Module 2a

II. Defining Risk – Risk terminology in the Climate Expert Magnitude Climate change phenomenon Impact Negative effect on the business RISK In the Climate Expert, a risk is the likelihood that certain negative business effects occur multiplied by the magnitude of the expected genative effects. Likelihood and magnitude are determined by the nature of the climate phenomenon and its impacts. Likelihood ToC - Module 2a

Negative effect on business Higher mean temperatures II. Defining Risk – Examples of negative effects on the business Example: Textile dyeing company Phenomenon Impact Negative effect on business Higher mean temperatures Dyeing colors dry up more quickly Increased costs for keeping color wet / buying new color Groundwater level falls Increased costs for obtaining fresh water for production Shrinking of glaciers Increasing water scarcity, new regulation to save water Company has to pay fines if it cannot comply with new reg. Heat waves Staff feel dizzy and cannot concentrate Reduced productivity, reduced output Higher humidity Textiles get moldy more quickly and smell Negative customer feedback, loss of profit Heavy rain & flooding Premises get flooded Costs for repairing damaged machinery & products Transport routes are blocked  Shortage of raw material supply, delivery delays ToC - Module 2a

II. Defining Risk – Risk terminology in the Climate Expert Risks should be phrased using the expected negative effects on the business and the impact from which it occurs; for example: Destruction of machinery due to flooding Reduction of worker productivity due to heat wave The climate change phenomenon does not need to be mentioned ToC - Module 2a

III. Risk Assessment ToC - Module 2a

Discussion – Dealing with uncertainty Do you agree with the statements below? How can you deal with uncertainty in the context of businesses and climate change? “... it is clear that without certainty, we are unable to plan optimally for climate changes in the future.” Source: C2ES 2013 “The high uncertainty concerning physical risks [of climate change] […] makes investment in adaptation plans potentially risky.” Source: C2ES 2013 ToC - Module 2a

III. Risk assessment – Dealing with uncertainty Challenge: It is often difficult to assess the likelihood of an impact as well as the specific negative effects on the business occuring from it Potential solutions: Consider experience and data from the past Draw inferences from similar impacts Use ranges Work with different scenarios Make your assumptions transparent ToC - Module 2a

III. Risk assessment – Risk matrix for prioritizing risks ToC - Module 2a

Experience from practice – Examples of Climate Expert implementation ToC - Module 2a

Discussion – Assessing Climate Change Risks How do you deal with risks in your work with companies? Do you find the risk approach presented compelling? Would you feel confident in dealing with uncertainty related to climate risks in an adaptation assessment? ToC - Module 2a

Thank you for your attention! Company Trainer 1 Telephone number E-Mail address Homepage Company Trainer 2 Telephone number E-Mail address Homepage Knowledge partner ToC - Module 2a

Sources C2ES 2013: Weathering the Storm: Building Business Resilience to Climate Change. Available at http://www.c2es.org/docUploads/business-resilience-report-07-2013- final.pdf GIZ & adelphi 2013: Trainers Maunal. Facing the Impacts of Climate Change. Indian SMEs and Climate Change. Available at: https://www.giz.de/de/downloads/giz2013-en-trainer-manual-sme_small.pdf KPMG 2008: Climate Changes Your Business. KPMG’s review of the Business Risks and Economic Impacts at the Sector Level. Available at: https://www.kpmg.com/EU/en/Documents/Climate_Changes_Your_Business.pdf IPCC 2010: Managing the Risks of Extreme Events and Disasters to Advance climate Change Adaptation. Available at: https://www.ipcc.ch/pdf/special- reports/srex/SREX_Full_Report.pdf IPCC 2014: IPCC, 2014: Annex II: Glossary [Mach, K.J., S. Planton and C. von Stechow (eds.)]. In: Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Core Writing Team, R.K. Pachauri and L.A. Meyer (eds.)]. IPCC, Geneva, Switzerland, pp. 117-130. https://www.ipcc.ch/pdf/assessment-report/ar5/syr/AR5_SYR_FINAL_Glossary.pdf McKinsey & Company 2015: How Companies can Adapt to Climate Change. Available at: http://www.mckinsey.com/business-functions/sustainability-and-resource- productivity/our-insights/how-companies-can-adapt-to-climate-change UKCIP 2003: Climate Adaptation: Risk, Uncertainty and Decision-Making. UKCIP Technical Report. Available at: http://www.ukcip.org.uk/wp-content/PDFs/UKCIP-Risk- framework.pdf ToC - Module 2a