Risk often drives strategy, which in turn informs decision-making. Though decisions can be somewhat routine and made without much thought, more difficult and challenging decisions require deeper consideration. No matter where you are within an organization or as an individual, we are increasingly being faced with:
- Uncertainty – many of the facts may be unknown.
- Complexity – many interrelated factors that need to be considered.
- High risk consequences – the impact of the decision may be significant.
- Alternatives – there are a multitude of options to consider, each with its own set of uncertainties and consequences.
- Conflicting priorities – stakeholders with potentially divergent views and opinions.
For organizations, establishing systematic and transparent processes to identify, analyze, and evaluate risks is crucial in informing decision-making. For example, in terms of climate change, establishing a common ground and frame of reference is necessary to develop an effective blueprint. This is required to navigate the various pitfalls and challenges tied to the perception of climate change risks.
What is Climate Change Risk?
When examining risk through the lens of climate change, it’s crucial to understand what climate truly implies and to distinguish it from weather. Weather represents the precise atmospheric state at a specific location and time, while climate refers to sustained weather patterns. To draw an analogy, imagine rolling a die: weather would equate to the outcome of a single roll, and climate corresponds to the statistical results of multiple rolls.
Climate change refers to alterations in the long-term statistical weather patterns at a specific locale over considerable time. This explains why climate change is often compared to a ‘baseline’—for example, how the climate will transition from 1992 to 2030, or from 2030 to 2050. It’s also important to remember that these shifts in long-term weather trends can lead to changes in specific weather events, such as more intense rainstorms, heatwaves, or more frequent hurricanes.
The risks associated with climate change fall under two categories:
1. Physical Risks – These encompass acute weather events and long-term shifts in weather patterns that can induce tangible impacts. On a facility level, property damage can occur due to flooding or intense wind events, such as tornadoes. Long-term climate change effects may result in sea level rise, rendering coastal areas inaccessible. On a corporate level, disruptions to supply chains may occur or the inability to obtain insurable instruments might arise.
2. Transition Risk – These risks are associated with socio-economic and/or policy changes implemented to reduce and eliminate factors contributing to a changing climate. The main focus is on reducing an organization’s carbon footprint and greenhouse gas emissions.
Understanding climate change terminologies is vital in order to minimize the various biases that may influence the climate change discussions. This shared understanding serves as a crucial element in structuring an objective-based blueprint for accurately deciphering climate change risks.
How to Decipher Climate Change Risks?
Deciphering and addressing climate change risks shouldn’t be done in isolation. It’s crucial to incorporate various subject matter experts’ and stakeholders’ perspectives. This fosters a common understanding of the issues and the strategies needed to tackle these important matters.
The Power of BowTie
Bowtie serves as an effective visual tool to define risk through a climate change lens. It facilitates collaboration and the documentation of diverse perspectives within a unified platform to identify, analyze and evaluate climate change risks. Fundamentally, it is crucial to grasp the basic building blocks of the Bowtie methodology, and understand how it can be applied through a climate change risk lens.
About the Author
Dave Poole is a partner and environmental engineer at Dillon with over 30 years of experience in the areas of strategic planning, risk management, sustainability, and policy development. He is both a Certified Risk Manager (CRM) with the Global Risk Management Institute and a certified Sustainability and Climate Risk (SCR) professional with the Global Association of Risk Professionals.
If you want to learn more about BowTie, sign up for one of our three risk management training courses being offered across Canada.