Understanding climate risks and how to mitigate them

According to the Global Risks Report, environmental perils such as extreme weather events dominate the risk landscape both in the short and long term. The economic impact is profound, with global costs affecting infrastructure, property, agriculture, and human health projected to range between USD 1.7 trillion and USD 3.1 trillion annually by 2050.

For businesses and the public sector, it is more important than ever to understand their climate risk exposure and develop effective strategies for mitigation and adaptation. Therefore, Zurich Resilience Solutions has launched Climate Spotlight, a digital tool that provides access to state-of-the-art climate risk data and analysis.

Why are natural catastrophes and severe weather events becoming more frequent and intense?

Several factors play a role, but one of the main reasons for the increased frequency and severity of extreme weather events ultimately leads back to human activity. The continued emission of greenhouse gases acts as a blanket, blocking the outgoing radiation from the Earth’s surface and thereby increasing radiative forcing in the atmosphere. An additional factor is the decreasing reflection of the sun’s incoming radiation due to receding ice cover. The enforcement of the greenhouse effect leads to a rising average global temperature, which has a direct correlation to intensified extreme climate variability.

Oceans and large water bodies absorb much of the heat trapped by the greenhouse gases, causing midlatitude oceans to increase in mean temperature. Along with generally higher temperatures, significantly more evaporation occurs, providing an energy source for several extreme weather events. A hotter atmosphere has a higher capacity for water vapor, leading to more atmospheric condensation and consequently more precipitation. More evaporation feeds tropical storms to a larger extent, causing hurricanes to grow even more intense. The higher rates of precipitation also lead to a higher frequency of fluvial flooding, as water levels in rivers exceed their banks due to upstream extreme precipitation.

The increasing severity and longevity of heatwaves can also be attributed to rising mean global temperatures. A higher baseline temperature means that heatwaves start from a higher point, causing scorching temperatures. Additionally, the altered atmospheric circulation of the jet stream due to climate change leads to more persistent high-pressure systems, which are conducive to heatwave conditions.

In non-coastal areas, more extreme temperatures evaporate the available soil moisture and water bodies, leading to a higher risk of longer-lasting droughts due to less overall evapotranspiration from soil and vegetation. Consequently, longer-lasting droughts create more favorable conditions for more intense wildfires.

Are there specific perils on the horizon in the Nordic region? 

The variability in the climatic conditions between summer and winter is expected to increase meaning that on a general basis, winters will get milder and wetter, and summers will get warmer and drier.

Some uncertainty surrounds the future climatic conditions for the winter season though. Climate modelling suggests a future increase in mean winter temperature with an estimated doubling in the number of melting days, leading to more intense precipitation events. However, if the gulf stream weakens, which recent studies consider a high risk, less warm subtropical ocean water will reach Scandinavia. This will cause a significant drop in average temperatures there. The greater temperature difference between Northern and Southern Europe could lead to more violent storms. Additionally, a weakened gulf stream will negatively impact agriculture.

Extreme precipitation events are expected to become more frequent and intense for the Nordic region, as estimated with high confidence by the IPCC. Most of the increase in precipitation is expected to occur during winter, and more will fall as rain. This will also have an impact on the water capacity in rivers and soils, leading to higher risk of fluvial and groundwater flooding.

Windstorms are one of the most significant drivers of insured losses across Europe. A synthesis of several studies suggests that a future 2.5 °C increase in temperature could lead to an over 20 percent increase in European windstorm losses. Results from the latest climate modelling ensemble analysis strongly evidence a long-term increase in risk of winter windstorms in Northwestern Europe, most pronounced in UK and Scandinavia. Additionally, the peak wind gust speed is expected to increase proportionally. This, coupled with a steady sea level rise, will have a significant impact on the risk of storm surges at coastal environments.

 

More frequent summer heatwaves are also on the near horizon and with increasing frequency, the 95th temperature percentile is expected to increase proportionally i.e., heatwaves will get more extreme. In some regions in the Nordics, cascading events of heatwaves coupled with droughts leading to risk of wildfire will be more pronounced.

It is however important to distinguish between the metric definitions, as a heatwave defined relative to the normal conditions will have a smaller environmental and societal impact than that of a heatwave defined as number of days exceeding a fixed temperature threshold of for example 30 °C.

How can companies prepare for more frequent natural disasters and severe weather events?

There are two sides to climate resilience strategy; mitigation and adaptation.

Mitigation relates to the impact of a company’s operations on the environment. In order to counter this development, a company needs to identify their scope 1, 2 and 3 emissions and set ambitious and realistic goals for GHG-emission reduction, for example following the Science Based Targets initiative.

Adaptation relates to the impact of the environment on the operations of a company as well as public entities. Building resilience towards the escalating risk of acute and chronic physical damage from natural disasters is of upmost importance. And not just for complying with developing regulatory demands, but for securing the future operations of a company or public property or entity.

The actions towards building physical risk resilience is dependent on the operations of the company. Increased physical resilience can be achieved by adapting buildings to being able to withstand more violent weather, and organizational resilience can be improved by implementing early warning systems or continuity plans.

In any case, the first step towards building resilience is identifying and understanding which physical risk perils that are most likely to have an impact on the business operations, both from a current and future time perspective. This is where Climate Spotlight from Zurich Resilience Solutions can support.

How can Climate Spotlight help Nordic organizations build resilience?

Climate Spotlight is an interactive portal designed to provide a comprehensive analysis of climate data developed by Zurich, applied to specific locations. This visualization tool enables users to gain a deep understanding of their current and future risk profiles.

The portal leverages scenario analysis to help users identify the present physical risk perils that are significant to their operations and those that may become significant in the future. By integrating specific hazard values with exposure metrics, Climate Spotlight pinpoints locations with the highest combined risk for each peril

Climate Spotlight assigns a hazard level to each location, ranging from "high" to "low", for every risk peril. This enables a ranking of sites based on the total combined hazard score, which reflects multiple potential dangers that could affect each site. The final ranking indicates which sites have highest exposure to most amount of different types of risks that might have an impact. 

By understanding the current and future risk profile on a portfolio level, and identifying which sites have the highest risk, the users of Climate Spotlight can prioritize risk improvement actions for the most relevant locations.

With increasing climate regulatory demands, can Climate Spotlight support businesses in meeting these requirements?

The Corporate Sustainability Reporting Directive (CSRD) or any sustainability reporting exercise essentially involves documenting a business's risk management process. Identifying risks is a crucial first step for effective management, and Climate Spotlight supports this process.

From the perspective of double materiality, Climate Spotlight aids businesses in estimating their financial impact from physical risks and climate change. Under the CSRD regulatory framework, the analysis results are particularly relevant for reporting on the ESRS E1 Climate Change standard. Additionally, it can support the social aspect by demonstrating the potential physical impact on a business's employees.

All perils included in the portal comply with the indicative list from CSRD, offering a comprehensive range of risks for businesses to consider.

 

For more information on how Zurich Resilience Solutions can help your company meet tomorrow prepared by offering data-led risk engineering and risk management services, contact Mikkel Stigaard.