Countries across the globe face uncertain and unprecedented risks that can be accelerated by climate change. Altered rainfall patterns, higher temperatures, and increasingly drastic climate events like storms, droughts, and heatwaves are the signs of the changing climate.
Governments and business organizations the world over must incorporate impacts of climate change to their strategic risk management plans. This will help them sufficiently adapt to climate change and avoid irreversible disruptions of life and business development.
What Is Risk?
Risk refers to the existing possibility for consequences in a scenario where a valuable thing is at stake, but there are no sure outcomes. Climate risk is generally represented by the potential (probability) for hazardous trends or events taking place, multiplied by the consequences/impacts in case these events actually happen.
It is a combination of three things: vulnerability, exposure, and hazards. A hazard is the probability that a given event will occur. Exposure is how many people (or goods) will be affected if it occurs. Vulnerability refers to characteristics of a community that make it more or less vulnerable to the effects of this event. For example, poverty can affect a community's capacity to recover from a natural disaster and poor building design can increase vulnerability to natural disasters.
Risk is dynamic by nature. It changes according to the probability for certain events taking place in a particular area. Additionally, the level of risk can change as people in the affected places implement measures to mitigate or aggravate the potential damage. There has been a stronger focus on natural disasters in the recent past. The changing climate has increased the frequency, severity, and probability of natural disasters.
As the risks of natural disasters rise, the countries and cities across the globe become more exposed. In the past, scientists have used historical events to predict and assess such risk. But now, climate change has affected the reliability of this method, forcing climate researchers to go back to the drawing board and develop better predictive models.
Why Assess the Risks of Climate Change?
Every year, an array of climatic events takes place, creating risks to cities, countries, and business organizations. The risks exist in varying degrees from one season to another and differ for various locations. Today, it has become imperative that governments and business enterprises create working strategies and practices that deal with these risks.
Yet, a growing trend in risk assessment has been the increasing unpredictability of climatic events as climate change takes a toll. The prevailing assumption that the climatic events likely to happen will be similar to those of the past is being proved wrong. Essentially, climate change is invalidating this assumption as the severity and frequency of these extreme climatic events grows.
The new normal is the unpredictability as new climate patterns form. The consensus in the climate science world is that climate change will have pervasive effects that every country, city, and organization will somewhat experience. These effects will touch on the environment, the world economy, infrastructure, social behavior, and many other aspects of life for both flora and fauna.
Some impacts of climate change will be extremely expansive and will take humanity a long time to reverse. Therefore, human behavior will have to adapt to survive and thrive in a planet that will be very different from what it was just a few centuries ago. This is what makes risk assessment so important; to effectively adapt, we must have a clear understanding of the risks that climate change poses and how these risks are likely to alter our lives and lifestyles.
Understanding the Links Between Climate Change and Risk
To understand the links that exist between climate change and risk, we will use the risks that climate change poses to business organizations. For businesses, the risks revolve around their ability to deliver the solutions they promise to their customers. These risks may not be directly linkable to climate change because they occur at the end of a long chain of consequences that result from the changing climate.
For this reason, if we are to understand the links that exist between risk and climate change, we must understand this chain of consequences and how it forms. Understanding this chain makes it possible to accurately identify assets and activities in an organization that climate change has put at increased risk.
As mentioned earlier, risk combines the probability of an occurrence and the potential consequences if that likely event actually took place. Both the probability of occurrence and potential consequences cannot be known with certainty.
This is even more so when looking into the risks that climate change poses; while we certainly know that climate change is taking place, we can’t say with certainty what the magnitude of these changes will be and the impact they will have in different regions of the world.
That said, while these uncertainties are notable, they should not prevent you from understanding these risks, at least qualitatively, enough to put in place measures to adapt accordingly, as well as a course of action to mitigate against possible impacts.
Climate risk assessment often entails qualitative techniques and information that describes the nature of risks. Qualitative techniques are used more often than quantitative techniques due to the uncertainty that exists when it comes to the probability and consequences of climatic events.
That notwithstanding, the qualitative techniques employed can still be rigorous and comprehensive enough to help us identify and prioritize risks of climate change. For business organizations, the process is based on standard scenarios of climate change, a basic understanding of the impacts of a changing climate, an expansive understanding of the organization, and an expert’s professional opinion.
Conceptualizing Climate-Related Risk
Climate risk management refers to the actions that would need to be taken to significantly reduce the negative impacts of climate change. Typically, these actions include assessments as well as the development and implementation of policies related to climate variability. While risks can have both negative and positive outcomes, in this guide, we will focus on the possible negative outcomes.
Risk refers to a theoretical condition while a hazard event happens in real life. The result of an actual hazard can sometimes be immediate and dramatic or have longer-term effects. For instance, floods have immediate and dramatic impacts that can include damaging crop production, which in turn leads to food shortages, and sometimes even famine.
An example of a longer-term hazard is the reduction of the yearly average precipitation over many years that makes it necessary to shift the food grown, say, from maize to sorghum. Consequently, this changes the food that is marketed and consumed in that region.
Climate change brings incredible changes to the way people live, the economy of a place, etc. The changes are often slow but deep and are often connected to more than one hazard. In contrast, individual hazards are often the evidence that the prevailing climate-driven activities (like the crops grown in an area) are no longer compatible with the new climate patterns of that area.
This is why climate risk assessment must consider both short term and long term economic and social impacts instead of merely the changing nature, frequency, and magnitude of the physical manifestations of climate change.
As a matter of fact, the individual and social impacts associated with climate change are of a greater significance over time than the observable physical changes from the changing climate. As such, it is the impact of the changes, rather than the changes themselves, that affect societies and individuals.
Risk Assessment Data
The data necessary to do a climate risk assessment is divided into four categories with the measurement protocols used determined by the specificity and nature of the data in question. These categories, which are used in the Geographical Information System, include:
- Baseline data - some data types in this group include infrastructures like roads, population, physical and hydrologic features, place names and administrative boundaries, and elevation.
- Hazard data - some data types included in this group include the magnitude of an event, its frequency, and location. The measurement used is, typically, a tally of the total number of occurrences in a given time, say, a year, or a century.
- Climate hazard damage data - This category aggregates the economic damage like numbers of buildings destroyed or lives lost, as well as the assistance that was availed. The data is analyzed and presented in monetary terms when possible as per capita loss per period and per hazard.
- Socio-economic data - The data covered under this category includes the social, natural, physical, and financial capital available. It is analyzed and presented in terms of type, number, and value.
There are two approaches that are often used in data collection and analysis:
- The six-pack approach - This approach only uses data that can be clearly determined to be relevant to the process of risk assessment.
- The garbage-can approach - This approach collects all available data to analyze
While the garbage-can approach is often seen as more efficient because of the large volumes of data it deals with, the six-pack approach requires less effort and cost to execute, though the emergence of big data is changing this. It is also more efficient. While significant data and data types could have been collected, risk assessment under the six-pack approach is limited to those data sets that can be clearly linked to risk, and that have sufficient temporal and spatial detail.
Risk Assessment Process
Risk assessment processes begin with developing risk profiles. To do this, you identify three things:
- The events that can take place in the area in question
- The likelihood of events with varying severity taking place in the area
- The consequences of the events once they occur, including socio-cultural, public health issues, infrastructure, and economic consequences.
To find the total risk, you sum up the values of the risks associated with each event.
While a community might be unable to stop a natural disaster from occurring, it can take action to minimize the damage that extreme weather events bring. This 8-step guide takes a look at the possible hazards by describing possible scenarios and estimating the cost of damage. This information can help countries and cities better quantify the impact of these extreme weather events and be better prepared for others in the future.
Step #1: Project screening
It is in this step that the project is screened for vulnerability to hazards associated with climate change. The vulnerability is based on the location and type of project. In this step, we seek to know if the project viability can be influenced by the impacts of climate change as well as the existing risks to the project based on the present climate variability and extremes. This stage of evaluation can consider the following manifestations of climate change:
- Increased risk of riverine and coastal flooding
- Droughts and decreases in water availability
- Extremes and uncertainties in precipitation
- Increased intensity of hurricanes
- Increases in the mean sea level
- Increases in temperature
- Coral reef loss
- Beach erosion
There are numerous tools you can use to assist you during project screening. These include:
- The World Bank’s Climate Change Knowledge Portal (CCKP)
- The effects of climate change on the coast of Latin America and the Caribbean project database
- The Caribbean Climate Online Risk and Adaptation TooL (CCORAL)
Step #2: Define types of relevant hazards
This step involves listing all possible hazards, then determining just how relevant they are to a particular location both at present and in the future. The following are some hazard events that are impacted by climate change:
- Extreme flooding/rainfall
- Extreme avalanche/snowfall
- Levee/dam failure
- Extreme temperatures
- Ice storms
Step #3: Define event scenarios
For each of the types of hazards mentioned in step #2, there are several possible event scenarios every year. A severe drought, for instance, is possible in the same year that a mild one occurs. Each event scenario has a different probability of occurrence, with some event scenarios more likely than others.
In an analysis, it is possible to use different scenarios for every type of event, but in most cases, three or four scenarios provide enough information to create a fairly accurate depiction of the risk that each event type presents. Finding accurate references that show the probability of a certain scenario occurring is arguably the hardest part of any risk assessment undertaking.
The situation in the United States is somewhat different because there is an array of hazard mitigation, risk assessment, and engineering design research that provides credible sources of data for quite many types of events. For some event types, it might be necessary to carry out a survey that gives you a clear idea of the historical data available so that you can generate probabilities that each scenario presents based on climate change impacts. Once you determine the probabilities, you can now create event scenario matrices.
Step #4: Identification of affected assets
This step identifies the damage as a result of both direct and indirect impacts of event scenarios. It is quite easy to identify and quantify the direct impacts of event scenarios such as the destroyed homes following a hurricane, but it’s a little harder to identify the indirect impacts, yet they are just as important to identify and quantify.
A good example of an indirect consequence of an event scenario is a worker who may be temporarily jobless following a flooding event that damages the store where he is employed. He could remain jobless until the shop was fully repaired and its inventory restored. It is not uncommon in such situations for the insurance claim money to take many months before the store owner is compensated. Certainly, these events sometimes do result in people permanently losing their jobs.
Direct impacts of event scenarios include:
- Damage to property
- Loss of inventory
- Costs of displacement
- Lives lost
- Loss of personal property
- Business revenue loss
Indirect impacts of event scenarios include:
- Fewer long-term investments as investors look elsewhere for less risky places to invest
- Costs that come as a result of the loss of services like electricity and water connections
- Local economy depression that lasts for months or years
- Bankruptcy and/or exponential increase in personal debt
- Drastic drop in the value of homes
- An increase in insurance rates
- Loss of jobs
Step #5: Assessment of the damages that each asset has sustained
This fifth step involves the estimation of damages each asset has sustained for every one of the event scenarios. For unique, large assets like hospitals, power plants, and pipelines, it is important to conduct an assessment that will allow you to quantify the likely damage the facility would suffer when a certain event scenario takes place.
To do this, consider interviewing the facility owners and managers. You can show your findings in a risk curve where the severity of an event rises as its probability falls. That also means that a low probability event has higher expected damages if it were to occur.
When modeling many assets, e.g. hundreds of homes built in an area prone to hurricanes, you can develop this risk vulnerability curve that quantifies the expected damage based on how severe the event is. After you’ve established an estimate of the damage for each one of the scenarios, add them all up to get the total estimate of the damage for the entire scenario.
Step #6: Calculating the risk exposure for the entire year
To calculate the exposure to risk that all the event scenarios possible in a year present, you should use the risk curve you created in step #5. Calculate that area below the curve using the data points from event scenarios identified in step #4. You can use modeling software to calculate the annual exposure to risk as well as the risk curve.
The result you will obtain when you calculate the value of the yearly risk exposure will quantify the damage that property or a city is likely to suffer every year, assuming that every possible type of event can be distributed evenly every year as well as averaged out. Once you’ve calculated the annual exposure to risk for all event types, create a table that will present comparisons of risk exposure that each event presents yearly. After this, you can do a sum total of the risk exposure by adding all the values of the annual risk from each of the event types.
Step #7: Calculating the total risk exposure
To find the total risk for a particular event type, you aggregate the value of the future annual risk exposure. The reason for doing this is so that you can compare the total risk of the different assets, event types, and locations. This will, in turn, help you determine which of them has the highest cumulative risk exposure in the near future.
How is this different from the annual risk exposure? Unlike the annual risk exposure, the total risk exposure accounts for the possible changes in the risks over time. In addition, the total risk exposure shows the estimated future damages with a single value.
While the annual risk exposure that some types of events have will remain unchanged from one year to the next, the probability of climate change-related natural events taking place will increase from one year to the next. That, by extension, means the damages will also increase.
Step #8: Interpreting the results
This last step shows you how you should interpret the results of your risk assessment. The results should explain the vulnerability of a region to climate change impacts in a manner that is quantifiable. You should consider organizing those results into several priority lists that can help the city or region develop a clearer understanding of its risk exposure. Using the results, a city can find the motivation it needs to do something about its high-risk assets.
The priority lists below together create a more complete image of a region’s risk, helping decision-makers better understand the climate change issues they are dealing with, how climate change-related events will impact the area, and which facilities they should attend to first.
Prioritizing affected areas
This priority list is based on the organizational and spatial distribution of climate change-related hazards. It helps property owners and the leadership of a city to better focus their attention on demographic segments, neighborhoods, and industries whose risk exposure numbers are the highest.
Prioritizing event types
To properly interpret the risk assessment results, you should organize them with the intention of understanding the hazard event types with the highest probability of affecting the city and/or its infrastructure. Understanding the event types that should be top priority makes it possible for people in leadership to focus their planning efforts, community preparedness, and funding resources on the events with the highest impact on the city.
Prioritizing vulnerable assets
Any city will have both tangible and less tangible (or in some cases, altogether intangible) assets. The tangible ones are objects like power plants and hospitals. Less tangible ones include things like skilled labor, reputation, and quality of life. Both types of assets contribute to a city’s success. Therefore, it is important to have a priority list that outlines the exposure to the risk of particular assets. The list will help decision-makers know where they should focus their efforts: where they are likely to record the greatest gains.
For most cities and communities around the world, climate change is shifting the risk landscape, making it all the more important for the leadership in these regions to understand these risks and figure out how to best respond. Businesses, on the other hand, must integrate the risks associated with climate change into their systems of risk management.
When assessing the climate change risks, keep in mind that you can do so at different detail levels, depending on your project’s scope, the existing risk potential that can be attributed to the impacts of climate change, and the resources available.
A well-executed climate risk assessment will go a long way in helping a city understand how big an investment it will need, and its list of priorities towards reducing risks. The most informed and adequately prepared cities will be resilient enough to bounce back quickly. To build resilience, we must start the process long before any disaster strikes.
Augurisk is a risk assessment platform for Climate Change, Natural Hazards and Societal Risks. We help people and businesses assess climate risks associated with their properties, so they can better prepare for the future.