When it comes to tackling climate risk, knowledge is power

The World Economic Forum’s 2022 Global Risks Report places ‘climate action failure’ as the most severe threat to the world over the next ten years. In addition to the escalating public health and ecosystem impacts, climate change presents significant financial risk to the global economy. Across the board, governments, businesses and financial markets need clear, comprehensive, high-quality information on the effects of climate change to provide decision support for implementing mitigation and resilience strategies.

Expectations from stakeholders and investors to disclose climate-related financial risks means organisations not only need to assess their impact on the climate, but also the impact of the climate on their assets, under various future climate scenarios. Failure to effectively assess, mitigate and adapt to climate-related risks can have reputational and financial consequences. This includes understanding the physical risks and impacts presented by extreme weather events and how climate change will propel policy, regulation, market and technology shifts, and societal transformation.

When one government agency sought to assess the exposure of its large international infrastructure portfolio to climate risk, it needed to know that it could effectively screen thousands of assets and receive detailed analysis and guidance. This was one of a handful of studies that started Jacobs on a learning process, applying lean start-up principles to the problem of helping businesses better understand their climate risk.

Building on deep-domain knowledge of public and private sector assets and operations, Jacobs developed a Cloud-based platform, Climate Risk Manager, which helps organisations understand the impacts of climate change and quickly and accurately assess, plan and invest against immediate and future climate risks.

Developed by a multidisciplinary team of engineers, the software is underpinned by an understanding of how to design, build and maintain climate-resilient infrastructure. The tool integrates best-in-class Intergovernmental Panel on Climate Change (IPCC) sanctioned datasets, developed by our global partners ClimSystems, with a state-of-the-art climate hazard scoring algorithm and climate risk assessment framework to deliver automated and actionable insights.

Critical infrastructure, including energy, water and transportation systems, are increasingly affected by hazards from heatwaves, storms, drought and flooding as well as slow-onset changes, including sea level rise. The IPCC’s latest report, ‘Climate Change 2022: Impacts, Adaptation & Vulnerability’, warns that the world will face multiple unavoidable climate hazards over the next two decades if global warming even temporarily exceeds current warming levels of 1.5°C (2.7°F), with hazards, exposure and vulnerability generating impacts and risks that can surpass limits to adaptation and result in losses and damages.

According to a report by CDP, the world’s largest companies have valued the collective climate risks to their businesses at almost US$1tn – with more than half of these risks expected to materialise in the short- to medium-term. Approximately $250bn of this figure is linked to asset impairments or write-offs as a result of climate-related risks. In fact, the top two drivers of financial impacts related to climate change were identified as increased operating costs (due to higher compliance costs and increased insurance premiums) and asset write-off or early retirement due to potential damage or being in high-risk locations.

The WEF, IPCC and CDP reports all stress the need for better analysis and risk reduction. With tools like Climate Risk Manager, organisations can add multiple assets in multiple locations and run a risk assessment to determine the overall hazard exposure across their portfolio and more detailed assessments related to specific climate hazards including coastal flooding, sea level rise, extreme wind, drought, extreme heat and water stress.

In 2021, Jacobs coupled the platform with its own bespoke approach to climate risk analysis to meet expectations of the Task Force on Climate-Related Financial Disclosures – a methodology the company is now sharing with its clients. Such analysis empowers organisations to make important decisions about both current and planned assets, including the need to take corrective action to ensure the continuity of important services.

By rapidly mapping across an entire operational and value chain base, the platform provides organisations with a holistic understanding of climate risk and exposure, together with the power to take action to mitigate and adapt to future risk. After all, when it comes to climate risk, knowledge is power.

Jan Walstrom is SVP, head of the Office of Global Climate Response & ESG at Jacobs.