Module 1: Physical Risks

Module Overview

Physical risks arise when climate-related hazards (extreme weather events, wildfire, sea-level rise, etc.) interact with vulnerable human and natural systems. When those risks materialize, they can have a range of financial impacts on an organization, including (for example): direct costs for restoration and repair, lost sales revenues, declining consumer demand, and increased financing and insurance costs.

In this module, we’ll use case study examples to explore physical risks of climate change for private and public organizations in the face of a range of potential climate hazards. We’ll explore both direct physical risks (i.e., those related to an organization’s own vulnerabilities) and indirect risks (i.e., those that materialize elsewhere in an organization’s value chain, such as with its suppliers, transportation infrastructure, consumers, etc.)

Module Objectives

By the end of this module, you will:

  1. Identify direct and indirect physical impact pathways that link climate with private and public value chains;
  2. Understand “risk” as the dynamic interplay between hazards, exposure, vulnerability, damage and loss;
  3. Interpret basic climate data and forecasts to formulate conclusions regarding risk levels and projections.

 

Readings & Resources

A primer for investors and lenders on insurers’ natural catastrophe models for extreme weather perils. In Cambridge Institute for Sustainability Leadership (CISL). (2019). Physical risk framework: Understanding the impacts of climate change on real estate lending and investment portfolios.

Task Force on Climate-related Financial Disclosures. (n.d.) Examples of climate-related risks and opportunities and potential financial impacts.

The Expert Panel on Climate Change Risks and Adaptation Potential. (2019). Canada’s top climate change risks. Council of Canadian Academies. [Chapter 2, pp. 8 – 26].

Woetzel, J., Pinner, D., Samandari, H., Engel, H., Krishnan, M., Boland, B., & Powis, C. (2020). Climate risk and response: Physical hazards and socioeconomic impacts. McKinsey Global Institute. [Excerpts only].

 

Data sources

World Bank Group. (2021). Climate Change Knowledge Portal (Canada). https://climateknowledgeportal.worldbank.org/country/canada/climate-data-projections

 

Reference resources

EM-DAT Glossary. (n.d.). Centre for Research on the Epidemiology of Disasters. https://www.emdat.be/Glossary

General classification. (n.d.). Centre for Research on the Epidemiology of Disasters. https://www.emdat.be/classification

World Bank Group. (2018). Glossary of terms and definitions. Climate Change Knowledge Portal. https://climateknowledgeportal.worldbank.org/themes/custom/wb_cckp/resources/data/CCKP_Glossary_Oct_2018.pdf

 

License

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Financial Impact of Climate Change by Todd Thexton is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

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