Climate Change Physical Risk

From Open Risk Manual

Definition

'Climate Change Physical Risk is any Physical Risk that is induced by Climate Change.

Such risks may have financial implications for organizations, such as direct damage to assets and indirect impacts from supply chain disruption. An organizations’ financial performance may also be affected by changes in:

  • water availability, sourcing, and quality;
  • food security; and
  • extreme temperature changes affecting organizations’ premises, operations, supply chain, transport needs, and employee safety.


Physical risks emanating from climate change can be event-driven (acute) such as increased severity of extreme weather events (e.g., cyclones, droughts, floods, and fires). They can also relate to longer-term shifts (chronic) in precipitation and temperature and increased variability in weather patterns (e.g., sea level rise).

Acute Physical Risks

Acute physical risks refer to those that are event-driven, including increased severity of extreme weather events, such as

  • cyclones, hurricanes, or floods
  • droughts
  • fires

Chronic Physical Risk

Chronic physical risks refer to longer-term shifts in climate patterns (e.g., sustained higher temperatures) that may cause sea level rise or chronic heat waves.