Disaster recovery is deeply intertwined with climate change, necessitating that businesses equip their recovery teams to proactively manage climate-related risks. With increasing global temperatures prompting more frequent extreme weather events, organizations are faced with heightened threats that could disrupt operations. It is crucial for businesses to evaluate these risks comprehensively to prepare for potential repercussions.
What is Climate Risk?
Climate risk encompasses the likelihood of negative impacts on organizations and their infrastructure due to climate change. Additionally, it includes the risks associated with the human response to climate mitigation strategies, such as shifting to carbon-free energy sources, which can inadvertently affect local ecosystems.
For effective disaster recovery planning, teams must understand various climate risks and incorporate the potential implications into their strategies.
Two Types of Climate Risk
Climate risks are commonly classified into two categories: physical and transitional.
Physical Risk
Physical risk refers to the tangible impacts of climate change on infrastructure, including potential damage to data centers from extreme weather events. According to the Carbon Disclosure Project, such risks can be categorized into acute and chronic.
Acute risks stem from event-driven phenomena, such as:
- Hurricanes
- Cyclones
- Tornadoes
- Hail
- Dust storms
- Heatwaves
- Wildfires
- Flooding
- Droughts
Chronic risks emerge from long-term climatic shifts, such as rising sea levels or consistently increasing temperatures, which can strain resources like cooling systems in data centers.
Examples of chronic risks include:
- Changes in precipitation patterns
- Gradually rising global temperatures
- Water stress
- Melting ice
- Land degradation
- Changes in sea levels
- Ocean acidification
- Climate-related migration
Transitional Risk
Transitional risk pertains to the adverse consequences organizations may face while adapting to climate change or shifting to sustainable practices. This type of risk can be broken down into various subcategories, including market, policy/legal, reputational, and technological risks.
Market Risk: This involves potential disruptions to supply chains and material sourcing caused by climate change’s effects.
Policy/Legal Risk: Organizations must navigate regulations aimed at mitigating climate change, which can impose significant operational costs and time constraints.
Reputational Risk: A business’s slow transition to sustainable practices can lead to negative public perception, affecting customer loyalty and revenue.
Technological Risk: The transition to greener technologies may render existing systems obsolete, increasing production costs and changing market dynamics.
Climate Risk Management Strategies
Addressing climate risk requires thorough strategies. Organizations typically follow a four-phase approach to managing climate risk assessments:
1. Planning: Develop a structured plan to assess risks and gather relevant climate data, utilizing existing databases as needed.
2. Conducting the Assessment: Identify risks, evaluate vulnerabilities and exposure, and map out responses and future risk identification strategies.
3. Incorporating Results: Integrate assessment findings into broader organizational strategies, ensuring alignment with disaster recovery plans.
4. Implementing and Managing Plans: Activate plans while continuously monitoring effectiveness and adjusting as new risks emerge.
A collaborative effort across all levels of the organization is essential to successfully execute climate risk management strategies.
Steps to Conduct a Climate Risk Assessment
Organizations can follow these steps for an effective climate risk assessment:
- Identify stakeholders and allocate responsibilities across business units.
- Define the scope and timeline for the assessment, including the methodologies and tools to be used.
- Compile a comprehensive list of assets and systems to analyze, considering their location and performance.
- Collect relevant climate data, encompassing current, historical, and prospective information.
- Identify potential risks and opportunities based on the collected data, evaluating their possible impacts.
- Analyze and assess risks, using frameworks that measure vulnerability, exposure, and potential losses.
- Establish management tactics for current and emerging risks.
Climate-related Opportunities for Improvement
Alongside risks, organizations can identify opportunities related to climate change that may mitigate their impacts:
- Resource Efficiency: Improvements in resource use can lower operational costs, particularly through enhanced energy efficiency.
- Energy Sources: Transitioning to alternative energy sources can result in savings as these technologies advance.
- Product Development: Creating eco-friendly products can enhance market competitiveness and improve brand reputation.
- Market Diversification: Opportunities may arise from the shift toward a low-carbon economy, including new product collaborations.
- Resilience Enhancements: Increased organizational resilience can lead to improved operational efficiency and innovation opportunities.