Quality climate data provides crucial insights to manage and report on climate-related risks
SustainabilityArticleJanuary 14, 20256 min read
As climate risks become more interconnected and complex, they require more comprehensive analysis, planning, management and reporting. To create the insights needed to meet these requirements, organizations must rely on high-quality data to assess and quantify climate threats and their longer-term impacts
Combatting the effects of climate change is largely considered to be the most pressing challenge of our time. More intense and frequent heatwaves, floods and droughts are just some of the hazards that societies, governments, and industries must prepare for if they are to protect their people and operations now and into the future. And according to recent research by the Economist, sponsored by Zurich Insurance, four in five people across 10 major global cities believe their city is underprepared for climate-related risks.
As climate risks become more interconnected and complex, they require more comprehensive analysis, planning, management and reporting. To create the insights needed to meet these requirements, organizations must rely on high-quality data to assess and quantify climate threats and their longer-term impacts
Climate data, which is starting to be incorporated more regularly into risk management scenarios, helps businesses identify and assess risks across the organization. Quantifying the potential financial impact of climate change on an organization helps them to prioritize the requisite adaptation measures to improve resilience against potential natural hazard events, at locations identified as high-risk. Basing such decisions on reliable data and financial loss models increases confidence in the efficacy of efforts and investments made to reduce the organization’s greatest climate risks and vulnerabilities.
The increased focus by regulators, societies and global institutions on climate risk and adaptation actions, and the continuing development of reporting requirements also creates demand for high-quality climate data. The scope of regulation is widening globally, exemplified by the Corporate Sustainability Reporting Directive (CSRD) which will see an approximate four-fold increase in the number of companies required to disclose their climate-related risks.1
Managing a company-wide risk
While CFOs and sustainability managers may find themselves at the front lines of sustainability reporting regulations, the responsibility for strengthening resilience is organization-wide, and therefore requires strategic management to embed a mindset and approach into day-to-day business operations and future planning.
Insurance managers, for example, must ensure that adequate coverage is in place, while risk managers need to ensure business continuity and robust supply chains operate seamlessly. Operations, supply chain management and site managers all have a critical role to play, as does the C-suite, where, ultimately, the responsibility lies for the long-term success of the business.
Using forward-looking data as part of an integrated approach to assess and quantify climate risks makes the outcomes relevant across multiple stakeholder groups and is a must-have tool to manage risk strategically and operationally. This calls for data that incorporates the following attributes to allow for confident decision-making throughout the organization:
- Consistency
Businesses should consider the risks as they are today, as well as their evolution over time under the different climate scenarios. Consistency of data that includes the latest observations and modelling to assess current natural hazards, and their evolution in the future, provides a comprehensive view of physical exposures to climate change comprising both present-day and future risks. -
Transparency
When businesses make use of climate data to understand and respond to their climate risk exposures – whether driven by regulation or strategic decision-making – stakeholders need to understand that data. This provides context and enables clarity when evaluating different sites and options for adaptation measures. By providing transparency on how the data was developed, as well as any data limitations, organizations can be more confident that money and resource is spent on areas most in need of adaptation. -
Flexibility
The climate data should accurately capture the complex relationship between risks. Certain hazards may necessitate the use of multiple metrics to evaluate their effects on various aspects of the value chain. For instance, when assessing the impact of heat, distinct indicators should be employed to analyze its potential impacts on processes, employees and equipment.
The importance of data quality
Alongside climate data, high-quality data related to the organization’s assets, suppliers and other factors is required to develop loss scenarios to quantify the potential financial impact. Such an iterative multiple-scenario analysis enables a more effective assessment of climate-related risks and a clear understanding of the most efficient mitigation measures.
Because of the uncertain nature of forward-looking data which are based on assumptions that consider human behavior, geopolitics, and technology, as well as a range of geopolitical and socio-economic factors, multiple climate change scenarios are required to understand the plausible range of risks that could evolve in time.
The climate data and risk management space is developing fast, as more organizations are seeking clarity to shape their future planning – and to build resilience for the long-term. Transparency of the data used is key to increase confidence in business planning and the implementation of adaptation measures.
To support this ambition, Zurich Resilience Solutions has developed Climate Spotlight, a SasS-based, interactive tool providing forward-looking risk analyses through an intuitive customer platform. This climate risk analysis, modeled on 4 different IPCC climate change scenarios up to the year 2100, helps organizations to uncover their exposure to climate risks, meet their reporting needs, and make confident investment and adaptation decisions.
Climate Spotlight leverages Zurich’s proprietary climate data, which is the same data used by Zurich’s Insurance and Investment businesses. This data is also used consistently in the calculation of the Group’s solvency position as per the Swiss solvency regime (Swiss Solvency Test, SST).
While climate change and related risks will only heighten in the years to come, our collective depth of data and how we are able to apply it to decision-making and strategic planning will likely reset the conversation and help propel us into a more resilient future.
