Your compass for increasing climate resilience
Climate risk and opportunity analysis
Driven by the urgency to limit climate change and transition to a more sustainable future, the European Union (EU) has proven to be one of the global leaders in climate policy in the past. As part of the EU Green Deal, the Corporate Sustainability Reporting Directive (CSRD) is a key element in the EU’s regulatory approach to integrating climate-related disclosures into corporate reporting. In the European Sustainability Reporting Standards (ESRS), Standard E1 focuses on the topic of climate and climate resilience. According to the standard, companies should report on climate-related topics, including the analysis of financial climate risks and opportunities. This analysis is based on the framework of the Taskforce on Climate-related Financial Disclosure (TCFD).
Based on the TCFD, the following classification of climate risks has been established:
Physical risks
- Acute risks arising from unforeseen, extreme weather events (e.g. heavy rain, storms, heatwaves), and
- Chronic risks caused by long-term climate change (e.g. rise in global temperature or sea level)
Companies must analyze which of these risks could have a negative impact on their business activities. For example, a manufacturing company must disclose how the increasing frequency of storms could affect its production facilities or supply chain and what financial consequences, e.g. damage to buildings or loss of production, are associated with this.
Transition risks
arise from the transition to a low-carbon economy. These include, among others:
- Regulatory changes (e.g. CO₂ pricing),
- Changes in the market (e.g. changes in customer behavior)
- Technological developments and advances, or
- Reputational risks due to sector stigmatization, for example
For example, an energy company with a high CO₂ intensity would have to report on the extent to which future carbon prices or stricter emissions regulations could affect its business model and competitiveness.
Climate-related opportunities
Climate-related opportunities, on the other hand, describe the potential financial opportunities that companies can achieve by proactively addressing climate change and strategically focusing on sustainable business practices. TCFD again distinguishes between several categories here:
- Resource efficiency: companies can reduce their costs and increase their competitiveness through energy savings, more efficient processes or recycling of materials.
- Energy source: Switching to renewable energies can stabilize energy costs in the long term and reduce dependency on fossil fuels.
- Products & services: New products and services in the field of climate protection, such as low-emission climate and efficiency technologies or sustainable financial products, offer opportunities for growth.
- Access to new markets: Sustainable business models and low-carbon products can increase customer loyalty and brand value.
- Increasing resilience: Companies that manage climate-related risks at an early stage strengthen their resilience and gain investor confidence.
Based on TCFD
Climate-related scenario analysis
Another key tool in climate risk and opportunity analysis is scenario analysis. It helps companies to systematically assess identified climate risks and opportunities by taking into account various possible developments in climate change and climate policy. The focus here is on what financial effects could arise in the short, medium and long term and how resilient the company’s business model is to these changes. It is therefore a fundamental component of the climate resilience analysis.
Such scenarios have been developed and published by institutions with relevant climate expertise such as the Intergovernmental Panel on Climate Change (IPCC), the International Energy Agency (IEA) and the Network for Greening the Financial System (NGFS). Based on scientific findings, these show possible development paths that describe various physical effects of climate change and their economic aspects in narrative or quantitative terms.
The ESRS Standard E1 in particular recommends the use of at least two scenarios, including a climate scenario with high emissions and a scenario with low emissions (in accordance with the Paris Climate Agreement to achieve the 1.5°C target).
Integrating scenario analysis into corporate risk management and planning processes helps companies to strengthen their climate resilience, build adaptive capacity, promote sustainable growth and create long-term value in a changing climate landscape.
Relevance
Why an analysis of climate-related risks and opportunities is important
Growing regulatory requirements and stakeholder interests
Numerous regulatory requirements now require companies to conduct and disclose a climate risk and opportunity analysis. The analysis is intended to ensure that companies understand and manage their impact on the environment and the financial consequences of climate change on their operations. The aim of climate risk assessments is also to raise awareness of climate issues throughout the organization.
The most relevant regulations include:
Recommendation: Companies in Europe should focus primarily on the CSRD/ESRS requirements, but also monitor other reporting frameworks and ratings such as CDP or EcoVadis, as these are increasingly being integrated into regulations.
Various stakeholder groups also expect companies to conduct climate risk assessments and disclose the results. Meeting these expectations not only increases transparency and accountability, but also helps companies to better understand and manage the financial and operational impacts of climate change, ultimately contributing to long-term sustainability and resilience.
Our Services
Climate risk and opportunity analysis
DFGE supports companies in the assessment of climate risks and opportunities based on the TCFD framework and in accordance with the regulatory requirements of the ESRS, in particular the E1 standard. We support our clients in the following areas, among others.
- Identification of material climate risks (physical and transition) and opportunities and their assessment with the help of workshops on a qualitative basis
- Quantitative analysis of physical climate risks using modeling software
- Conducting scenario analyses on a qualitative basis
- Analysis of the resilience of the business model
- First steps towards comprehensive climate risk management
- Detailed process documentation
Quantitative climate risk analysis
To identify the socio-economic effects of weather and climate for specific regions or locations, we carry out a software-supported quantitative analysis of physical climate risks for our clients. In doing so, we rely on the software solution of our cooperation partner Climada.
Your Advantages
Climate risk and opportunity analysis with the DFGE
DFGE offers companies comprehensive support in the assessment and reporting of climate risks and opportunities, which is consistently aligned with the requirements of the CSRD and the TCFD framework. This not only enables companies to meet current regulatory requirements, but also strengthens their strategic position through proactive risk management.
- Compliance with current reporting obligations such as the mandatory CSRD
- Development of a strategy for climate risks and opportunities: positive financial impact
- More trust through greater transparency for all stakeholders, e.g. customers, partner companies, employees
- Increased brand value, higher company valuation and better ratings
- Increasing resilience and competitive advantage
- Raising awareness of climate protection in all business areas
