Climate-related physical risk (Physical risk from climate change)
Risks resulting from climate change that can be event-driven (acute) or from longer-term shifts (chronic) in climate patterns. Acute physical risks arise from particular hazards, especially weather- related events such as storms, floods, fires or heatwaves. Chronic physical risks arise from longer-term changes in the climate, such as temperature changes, and their effects on rising sea levels, reduced water availability, biodiversity loss and changes in land and soil productivity.
Climate-related physical risks are the material impacts of climate change that relate to both short-term, acute events and long-term, chronic changes. Acute physical risks include extreme weather events such as storms, floods, heatwaves, and wildfires, which can have immediate and often catastrophic effects on people, infrastructure, and the environment. Chronic physical risks, on the other hand, are gradual, long-term changes caused, for example, by the increase in global average temperatures, altered precipitation patterns, and the resulting rise in sea levels.
These risks are particularly relevant for companies and financial institutions, as they can not only directly impair operational performance but also influence the broader economic environment. For instance, production outages, supply chain disruptions, or losses in real estate values can jeopardize financial stability. Furthermore, health impacts, such as increased mortality during heatwaves, as well as psychosocial consequences from frustrating experiences during extreme weather events, are significant.
To effectively assess and manage climate-related physical risks, a systematic analysis that takes into account hazard, exposure, and vulnerability is necessary. This requires not only a data-driven risk assessment but also strategic adaptation measures and emergency plans to enhance resilience to the challenges posed by climate change. Properly considering these risks within sustainability strategies is crucial for the future viability of companies and societies.
