Climate Resilience in Industry: Identifying risks, acting ctrategically

Why Companies Need to Act Now

Climate change is no longer just an environmental reporting topic. Increasing weather extremes, rising CO₂ prices, and tightening ESG requirements all show: climate risks are real business risks. Those who are prepared today will gain a competitive advantage tomorrow. Three core levers are at the heart of the response: mitigation, adaptation, and resilience. In this article, we explain how companies can systematically assess physical and transitional climate risks — and what that means in concrete terms for strategy, finance, and supply chains.

The three pillars of Climate Risk Management: Mitigation, Adaptation, Resilience

Effective climate management starts with understanding the three basic strategies:

• Mitigation: Actions to reduce greenhouse gas emissions, for example, improving energy efficiency or switching to renewable energy. This is where the majority of global climate financing currently flows.
• Adaptation: Strategies to lessen the impacts of climate change, such as flood protection, climate control systems in vulnerable buildings, or climate-smart agriculture.
• Resilience: The ability to quickly recover from climate-related disruptions such as floods or heatwaves - enabled through systemic preparedness, not just reactive measures.
  In some contexts, resilience is also understood as a combination of all three strategies.

Scenario Analysis according to CSRD

Climate risk analysis under the CSRD is divided into two perspectives:

Physical risks

These include heatwaves, flooding, water scarcity, or storm damage — both at the company’s own sites and throughout the supply chain. A key issue: Many companies focus only on their own assets, without considering supplier locations, critical customers, or essential transport routes. It is important to select a negative scenario that assumes a global temperature increase of more than 4°C by the end of the century. A suitable option would be the SSP5-RCP8.5 scenario from the IPCC report.

Transition Risks and Opportunities

These arise from political, regulatory, or market-driven changes as part of the transition to a climate-neutral economy. Examples include rising CO₂ prices, shifting consumer behavior, or technological disruption. For this, it is advisable to choose an ambitious scenario that assumes global warming of less than 2°C by the end of the century, as this is where the most significant societal changes are expected. A suitable scenario is the IEA Net Zero Emissions by 2050 pathway. However, a climate-friendly business model can also create financial opportunities — for example, through increased demand for sustainable products.

Structured Assessment Process

‍Tanso recommends a systematic assessment approach:

1. Identification of Climate Risks: Analyze external sources such as the Water Risk Atlas, temperature and precipitation trends, ESG ratings, market studies, and relevant regulations - all in relation to the company’s critical infrastructure and business model.
2. Prioritization: Assess risks based on likelihood of occurrence and financial impact, and derive their relevance following the approach used in the double materiality assessment. Example: Carbon pricing as a top-priority risk for energy-intensive industries.
3. Gross/Net Impact Assessment: What is the maximum potential damage (gross) versus the residual damage after mitigation measures (net)?
4. Consequences & Action Plan: Define concrete areas of action - from decarbonization and site restructuring (or relocation if needed), to integrating climate scenarios into financial planning and investment decisions (potentially including the introduction of an internal carbon price).

Financial Impact & CFO Relevance‍

Climate risks are not an abstract issue of the future — they are already affecting cash flows and company valuations today. Whether through rising insurance costs or declining EBIT margins due to carbon pricing: failing to incorporate climate-related effects into investment decisions leads to misallocations.

Climate is a CFO-topic. Without integration into capital allocation and risk management, business decisions remain incomplete.

Three Levers for Greater Climate Resilience

• Mitigation reduces long-term risks
• Adaptation strengthens operational resilience
• Transformation creates new opportunities through innovation and strategic repositioning

These levers are interconnected — early investments reduce adaptation costs and improve resilience, ensuring better preparedness when risks materialize.

Top Takeaways

• Climate risks are increasingly impacting financial performance indicators
• Early action reduces damage, increases resilience, and can even open up financial opportunities
• Climate resilience is a management process, not a one-time project
• CEOs, CFOs, finance, and sustainability teams must work together
• Tools like Tanso provide transparency and a foundation for decision-making

Tanso supports industrial companies in efficiently implementing their CSRD and EU Taxonomy reporting.
The integrated climate risk analysis within the software allows all required information for the Double Materiality Assessment (DMA) to be captured in a structured manner. Companies can systematically analyze relevant risks and opportunities and clearly document them in the designated justification fields.

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