Module 2 Assessing Climate Change Risks Country, Date, Presenter

Objective The objective of this module is to: gain an understanding of the concept of risk and affiliated factors learn about the different types of risk and their importance comprehend the basics of an risk assessment and why it matters to businesses 18/11/2018 Title

Businesss and Climate Risk Conceptualising Climate Risk Outline / Agenda Businesss and Climate Risk Conceptualising Climate Risk Risk Assessment 18/11/2018 Title

I. Businesses and Climate Risk 18/11/2018 Title

III. Businesses and Climate Risk – Risks Adapting to Climate Change or … Managing Climate Risks and Opportunities Are you familiar with this concept ? Which existing risk management tools do you use in your work with SMEs? What is the relevance of climate risk for them? 18/11/2018 Title

III. Businesses and Climate Risk – Overview on different types of risks Risks that climate change poses to businesses Source: McKinsey 2015 18/11/2018 Title

III. Businesses and Climate Risk – Overview on different types of risks Source: C2ES 2013 18/11/2018 Title

III. Businesses and Climate Risk – Overview on different types of risks According to a study of KPMG (2008), these are the most important business risk types mentioned in relevant scientific research. Source: KPMG 2008 18/11/2018 Title

III. Businesses and Climate Risk – Overview on different types of risks Source: KPMG 2008 18/11/2018 Title

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 The need for a structured approach on how to assess and mitigate climate risks (Climate Expert) 18/11/2018 Title

II. Conceptualising Climate Risk 18/11/2018 Title

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 18/11/2018 Title

II. Conceptualising 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) 18/11/2018 Title

II. Conceptualising Risk – Terminology “Risk is the combination of the probability of a consequence and its magnitude. Therefore risk considers the frequency or likelihood of occurrence of certain states or events (often termed ‘hazards’) and the magnitude of the likely consequences associated with those exposed to these hazardous states or events” (UKCIP 2003). Direct risks (e.g. damages to buildings caused by natural disasters) Indirect risks (e.g. rise in raw material prices due to drought-related crop failures) Source: UKCIP 2003 18/11/2018 Title

II. Defining Climate Risk – Likelihood and Magnitude The probability or likelihood can be determined by looking at how frequent and at what intervalls a climate event has occured in the past, and, then, by predicting its occurrence for the future. Additionally, it must be analysed with which delay the impact follows an climate or wheather event. The magnitude concerns the scale of the negative effects on the enterprise business but also the areas of impact within the company. It is to check which areas are affected, and if these are crucial to the business, such as the production processes or the stakeholders? 18/11/2018 Title

II. Defining Climate Risk – Risk terminology in the Climate Expert Magnitude Climate change phenomenon Impact Negative effect on the business RISK Likelihood 18/11/2018 Title

II. Defining Climate Risk – Phrasing risk in the Climate Risk A risk in the Climate Expert relates to It is the likelihood that a certain negative business effects occur; the likelihood is determined by the likelihood that a climate change phenomenon and resulting impacts occur It 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 Climate change phenomenon Impact Negative effects on the business 18/11/2018 Title

III. Risk Assessment 18/11/2018 Title

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 18/11/2018 Title

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 18/11/2018 Title

Negative business effects III. Risk assessment – Risk matrix Negative business effects 5. Extreme   4. Very High 3. Medium 2. Low 1. Negligible 1. Rare 2. Unlikely 3. Moderate 4. Likely 5. Almost Certain Likelihood 18/11/2018 Title

Experience from practice – Examples of Climate Expert implementation 18/11/2018 Title

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? 18/11/2018 Title

Thank you for your attention! GIZ Germany Ms Janina Wohlgemuth +49 (0) 6196 - 79 – 1245 janina.wohlgemuth@giz.de www.giz.de adelphi Germany Mr Frederik Eisinger +49 (0) 30 - 89 000 68 – 69 eisinger@adelphi.de www.adelphi.de 18/11/2018 Title

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 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 18/11/2018 Title