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Climate change and risk management


When organisations operate or invest in assets, products or services with long lifetimes, say beyond 15 years, then it is important to consider the environment in which those assets, products or services might have to operate, and the potential variations in climate. When managing future climate variations, organisations cannot simply rely on the assumption that the prevailing climate will be more or less the same as it was over the past 50 or 100 years. Even assessments of shorter-term forecasts might need to take account of the fact that patterns of extreme weather have already shifted from those upon which much historical data and experience is based.

In the future it is likely that there will be changes in both average temperatures and rainfall and the frequency and severity of extreme weather events such as heat waves, tropical cyclones and storms. Some of these changes may seem small, but in many cases their effects will be non-linear: for example, small increases in average temperatures or peak wind gusts can lead to large changes in the number of extremely hot days or the extent of property damage. For instance, where building design standards are attuned to past peak wind loading and peak flood levels, structures that were sound when prevailing conditions were just below historical design thresholds may be severely degraded if those limits are breached by even a small amount.

The effect of climate change might be felt not only in the long-term performance of an asset but also in its design, procurement and construction. Changing regulatory regimes driven by concern about climate change are leading to greater sensitivity to carbon emissions and other aspects of environmental sustainability that can affect the design of physical assets. At the same time, many construction activities are highly sensitive to weather conditions during construction and the increased incidence of extreme weather conditions that are already emerging might have to be taken into account when planning major construction activities.

The risk management process described in this tutorial note can be used to examine the effects of climate change on assets and communities, as well as on projects and investments. There are some recommended modifications to the process described in ISO 31000, primarily in the step of establishing the context, but the overall approach of ISO 31000 remains substantially the same.

Establishing the context

Establishing the risk management context is particularly important when thinking about climate change; Table 1 shows some examples. The risk management context should cover:

  • The project and operational activities
  • The geographical area over which they are conducted
  • The relevant time horizon.
Table 1: Risk management context examples

New manufacturing plant

This risk assessment will form a key part of the business case for our investment in the proposed new factory and associated logistic facilities, over the 15-year life of the primary assets.

It should take into account our other factories in the province, as well as dependencies on overseas raw material suppliers and the worldwide market for our products.

Health service upgrade

The risk assessment will consider all matters associated with expanding our current personnel, physical and systems assets to cover a wider geographic service area and an increased population while maintaining current operations. We must be able to meet our future requirements within existing service level agreements and satisfy our regulatory obligations for the next 15 years.

We need to take into account forecast increases in demand for our services, including those associated with changing demographics, changes in the incidence of diseases as the regional climate warms and additional cases of acute distress and possible dislocation of communities associated with extreme weather events.

Part of the challenge of dealing with climate change is that the climate is too complex for precise long-term projections to be made. However, when it is clear that there will changes and their effects will matter, the absence of certainty should not prevent a rational consideration of how those effects will impinge on a project.

To facilitate thinking about climate change and the associated risks, it is useful to develop climate scenarios that describe how the climate could change in the future. Scenarios are usually based on scientific projections. They provide a plausible summary of the changes to climate variables that could apply in the geographical region and over the time horizon of interest. The most useful climate change scenarios include:

  • Information on the direction of change in climate variables over the time horizon
  • Estimates of the magnitude of those changes
  • Descriptions of the conditions that would prevail in each scenario.

These scenarios become a starting point for the 'standard' process of ISO 31000.

Figure 1: Scenarios as an input to the risk management process

Climate change scenarios might also take into account the effects of the immediate changes in weather conditions on the environment. Subtle alterations in patterns of coastal erosion, distributions of marine organisms and the viability of sensitive habitats subject to environmental protection are already being observed. Some stakeholders may be unconcerned about these secondary effects but others may be severely affected, either directly or by regulatory changes stimulated by concern about changes in the environment. For example, we have already seen changes in land use regulations in beachside areas of Australia, imposed by local authorities in response to coastal erosion associated with higher sea levels and increased storm strengths, with knock-on effects on individual home owners and the value of their properties.

Many government scientific and environmental agencies around the world have prepared standard climate scenarios for their countries and regions, and in most cases these scenarios provide an excellent base for a risk assessment. It will only rarely be necessary to develop tailored scenarios or extend the standard ones to include additional climate variables. Generally, one or two scenarios covering the major plausible climate changes should be sufficient, to cover an expected climate future and a plausible worst-case outcome.

The risk management context and the climate scenarios should be taken into account when thinking about the stakeholders and the external and internal context, to ensure the full scope is covered adequately. Similarly, organisational and project objectives and success criteria, and the associated scales for measuring consequences, likelihoods and levels of risk, should cover the ranges of outcomes and timeframes of interest.

Key elements are used for structuring the risk assessment process. When assessing risks associated with climate change, each key element should be considered in conjunction with each climate change scenario being examined, as shown in Table 2.

Table 2: Key elements and climate scenarios

Key element

Scenario A: hot and dry

Scenario B: hot and wet

Element 1



Element 2



Element 3


Risk assessment

Significant insights about uncertainty and useful information for decision makers can be obtained with relatively simple climate change information and a straightforward risk assessment approach, leading to early and effective risk treatment. Where possible, existing scales for rating consequences, likelihoods and levels of risk should be used so that risks associated with climate change can be captured with other risks in a common risk register for the organisation.

The main difference is that risks must be identified, analysed and evaluated for each climate scenario, which takes additional time and effort, and the likelihoods of specific consequences arising may have to be adjusted to take account of the likelihood of the associated scenario arising.

Each risk may have to be assessed separately for each time period.

Figure 2: Risks and scenarios through time

Sometimes a two-stage approach to risk assessment is used (Figure 3), extending further the process of ISO 31000.

  • An initial assessment identifies and analyses risks quickly, followed by treatment planning and implementation for those high-priority risks that clearly require it.
  • More detailed analysis is used where additional information is needed to determine the level of risk, whether treatment is required or what form of treatment to adopt.

Figure 3: Initial assessment and detailed analysis

The initial evaluation decision in Figure 3 allocates risks into three categories:

  1. Risks that should be treated immediately without further analysis
  2. Risks that can be set aside without further action for the time being
  3. Risks that will require more detailed analysis before determining whether to treat them or not or to select the most appropriate form of treatment.

The first two categories recognise the fact that, despite the complexity of climate science and the difficulty of making precise forecasts, the requirement to treat some risks will be apparent as soon as they are spelled out. Detailed technical analysis is not required for every decision. It can be true of any risk assessment, but especially of climate change risk assessment, that the exercise might simply expose matters that had previously passed unnoticed. Once they are exposed, it will often be clear what has to be done.

For example, initial plans for a coastal road including several bridges and drainage to accommodate run off from a large catchment on the land side of the road might have been prepared using historical rainfall, storm and tidal data. Aspects of the design that are safe under those historical levels but close to the limit will be in danger if the frequency and intensity of severe precipitation and tidal surges increase. It might not be clear how much these will increase, but if it is certain that they will do so then a decision to design for a higher threshold may be taken without further detailed analysis. Engineering judgements like this are made throughout the design of major physical works; measures to accommodate climate change can be incorporated in the same way once the need has been identified.

Treating risks associated with climate change

Because of the long time scales associated with climate change, many of the treatment options are likely to have long time horizons. Specific treatment actions may involve:

  • Ensuring that designs for assets, infrastructure and technology incorporate appropriate robustness and resilience to withstand the anticipated future climate effects.
  • Ensuring the proposed locations for assets and facilities take account of the effects of climate and weather events.
  • Monitoring aspects of climate and weather behaviour against specified thresholds and trigger points, at which point either new risk assessments might be undertaken, or the implementation of prepared plans might be initiated.
  • Taking account of likely developments in regulatory regimes on the long-term economic performance of major assets.