Assessing financial impacts, climate risks, opportunities for organisations

Climate risks are broadly categorised into physical and transition risks. Physical risks are financial and operational threats arising from climate change, while transition risks stem from the shift to a lower-carbon economy driven by policy, legal, technological, reputational and market changes.

Acute physical risks, including floods, wildfires and landslides, can result in asset impairment charges and operational disruption. Chronic risks, such as droughts, rising temperatures and ecosystem degradation, can lead to prolonged financial losses through supply chain disruptions and increased restoration costs. Transition risks are another significant source of financial exposure.

Policy changes may result in fines or penalties, increasing operating expenses. Legal risks can arise from claims related to failure to mitigate climate impacts, further raising costs.

Market risks linked to shifting customer preferences can affect demand and ultimately business valuation.

Reputational risks tied to environmental impact may also reduce sales and investor confidence. In addition, technological change can render existing assets obsolete, leading to further impairment charges.

At the same time, climate change presents opportunities for growth and transformation. Organisations can develop new products and services that reduce environmental impact while expanding market share.

Efficiency gains through better resource use, including energy, water and waste management, can lower costs. Access to sustainable finance also provides opportunities to attract capital from investors aligned with environmental and social goals, supporting long-term resilience and improved financial performance.

The writer is a partner at PricewaterhouseCoopers. He is an author who writes and speaks widely on corporate reporting topics.