A Deep Dive into Climate Risks and Materiality

Abstract

This chapter delves into the intersection of climate risks and business management, emphasizing how changing environmental dynamics directly impact organizations, industries, and economies. It outlines the concept of risk in the business context and explores how companies assess and mitigate specific climate-related threats. As scientific evidence points to an increasing frequency and severity of extreme weather events, the chapter highlights the significant financial implications for businesses. It discusses the crucial role of the 2015 Paris Agreement in stabilizing global temperatures and the extensive structural changes needed across various sectors to achieve rapid decarbonization. The chapter also addresses the direct impact of climate change on asset values, with a focus on the expected “climate value at risk” (CVaR) for global financial assets. Furthermore, it explains the growing recognition of climate risks by financial communities and the resultant shift in capital allocation and oversight practices.