Build the case for climate risk action: Five steps for risk managers

Traditional risk models focus on short-term, acute events such as floods or earthquakes, but may not help risk managers make the case for responding to chronic hazards. These threats, such as rising temperatures, recurring heat waves, persistent drought conditions and long-term water scarcity, develop slowly but have significant consequences.

Chronic climate risks are already affecting the reliability and efficiency of many assets. Risk managers now need to translate complex environmental signals into operational and financial terms likely to galvanize decision makers.

Chronic climate hazards are projected to impose severe and escalating financial pressure on global businesses. According to the World Economic Forum (WEF), climate-driven losses for publicly listed companies are expected to reach $560–610 billion per year by 2035, with extreme heat accounting for 72–73% of these losses in the coming decade. Some industries face disproportionate exposure, for example, telecommunications companies risk $510–563 million in annual losses due to the vulnerability of data centers and networks to extreme heat.

This article gives you a practical, five-step approach to build the case for climate risk action. From identifying where your organization’s chronic risk exposures lie to presenting a compelling investment case to your C-suite decision-makers, we cover:

• Step 1: How can you identify your exposure to chronic climate risks?
• Step 2: How can you quantify the operational and financial impact of chronic climate risks?
• Step 3: How can you design effective mitigation and adaptation to chronic climate risks?
• Step 4: How can you evaluate adaptation and mitigation to chronic climate risks through ROI modeling?
• Step 5: How can you build a chronic climate risk narrative that leads to the right budget allocations?

Step 1: How can you identify your exposure to chronic climate risks?

Your first step is to understand where and how chronic climate risks intersect with your assets. Begin with a thorough review of your current exposure across all regions. Chronic risks vary widely by geography. Heat stress might threaten productivity in one location, while water scarcity or slowly rising sea levels may create pressures in another.

Next, you need to consider how risks may develop over future time horizons. As you explore the available climate models and datasets, bear in mind many rely on historic data and short-range forecasting, rendering them less suitable for chronic hazards that evolve gradually. However, some analytical models let you project out to 2030, 2050 and beyond.

Your goal here isn't to provide perfect accuracy, but to give a reliable sense of direction and magnitude of the perils most material to your organization’s long-term resilience.

Interpreting longer-term projections through your organization’s planning cycles is more likely to get the attention of senior decision-makers. While some sectors look decades ahead, many boards focus on the next five to 15 years. By offering a view on both the near-term operational implications and the longer-term signals that suggest threats to strong ROI you may be more likely to influence large-scale investment decisions.

Using established scenario analysis frameworks, such as the Shared Socioeconomic Pathways (SSPs) used in IPCC (Intergovernmental Panel on Climate Change) assessments can help you present a range of plausible outcomes rather than a single forecast. With this credible analysis, it may be easier for leaders to engage when you stress-test exposures. By comparing several data sources, you can also show you’re testing your assumptions.

Step 2: How can you quantify the operational and financial impact of chronic climate risks?

Once you’ve mapped your chronic risk exposures, you’ll want to translate them into measures that affect operational continuity and economic performance.

Chronic climate risks rarely appear as sudden shocks but create strain over time. You need metrics that capture these patterns, so leaders can see when these risks become material.

One useful indicator may be the number of days above a temperature threshold at which your facilities or equipment can operate efficiently. When temperatures remain above those limits, cooling systems, data center equipment, precision manufacturing or food, beverage and agricultural processes can start to fail or underperform. You can track how often this happens today and use climate projections to show how this may change.

If material to your operations, you might look to quantify how heat or water stress affects machinery and utilities. Equipment such as pumps, chillers and transformers may experience more frequent breakdowns under chronic strain. In some cases, the risk extends beyond the facility itself. For example, a heat-driven failure in a regional power network can lead to non-damage business interruption, even if your site remains physically intact.

You should also consider the quantifiable impact on people. Heatwaves can reduce shift availability and productivity, directly affecting output.

Every operational metric can be converted into a financial baseline, whether downtime costs estimates, output losses or additional maintenance spending.

This is about helping strategic leaders see the true cost of inaction against chronic climate risks by building the foundation for persuasive investment cases.

Look beyond your own operations. Chronic climate risks affecting key suppliers, logistics routes or critical third-party dependencies can disrupt your business, even when your own assets are unaffected. Mapping where your supply chain is exposed to heat stress, water scarcity or other slow-onset hazards can reveal vulnerabilities that may not get picked up in a facility-level assessment alone.

Step 3: How can you design effective mitigation and adaptation to chronic climate risks?

With a quantified understanding of your chronic climate risks, you can begin developing and assessing the mitigation and adaptation options.

Distinguish between new and existing assets. If you're planning new facilities, you can design them to operate effectively under climate conditions expected in 2050 or beyond. This might involve specifying cooling systems designed for higher temperatures or installing water storage capacity in regions where long-term scarcity is projected.

For existing sites, your plans might focus on retrofitting and targeted improvements, or investing in enhanced cooling, water efficiency measures, structural protections or upgrades to key equipment. The goal here is to find the most effective options to reduce exposure and improve resilience in line with operational priorities and timeframes.

Some industries plan for many decades, while others focus on the life of individual assets. By presenting options that align with current investment cycles, you can make recommendations both easier to absorb and more likely to move forward.

Step 4: How can you evaluate adaptation and mitigation to chronic climate risks through ROI modeling?

Once you’ve defined your mitigation options, you’ll want to evaluate them through cost/return analysis, comparing financial outcomes to show leaders their strongest choices for best value.

Using standard ROI methods alone can fall short. Net present value (NPV), for example, can be misleading because they assume a single discount rate that converts future cash flows into today’s money to support decision making. This can make long-term, high-uncertainty projects look less valuable than they really are or hide the chances of extreme outcomes and the impact of significant investments needed to tackle climate risks being hard to reverse.

The reality is when you deliver long-term programs, you’re doing so in stages. You have choices to pause, speed up, scale back, expand or stop as new information emerges. Complementing NPV with ‘real options’ analysis, calling on stochastic modeling, scenario and portfolio analysis, can put value on that flexibility, letting business leaders evaluate the benefit of keeping their options open in the face of uncertainty.

You’ll want to model how your options will affect downtime, operational efficiency, maintenance costs or other resilience metrics. Where possible, quantify both cost savings and avoided losses to enable clear comparisons and more informed decisions.

As part of this evaluation, consider how chronic climate risks may affect your insurance position over time. Insurers are increasingly factoring long-term hazard trends into coverage terms, pricing and availability. Demonstrating you have a proactive adaptation strategy can support more favorable terms, while failing to act may leave certain exposures harder or more costly to insure in the years ahead.

Step 5: How can you build a chronic climate risk narrative that leads to the right budget allocations?

The final step is to communicate the case for action in response to chronic risks clearly and confidently.

Use credible data and relatable operational examples and present your findings in a sequence that mirrors the steps above, calling on the cost-return metrics most meaningful to your C-suite.

Start with what’s happening now, then move on to how it affects your operations and finances. Next, outline the realistic options before showing how the various investment options, from doing nothing to adapting existing assets to relocation and considering chronic risks when evaluating future locations.

By helping senior leaders feel informed and in greater control of what may otherwise feel like overwhelming chronic climate risks, you can make a significant contribution to long-term resilience.

For specialist support to address the chronic climate risks facing your business and galvanize action on long-term threats to resilience, get in touch with our climate risk specialists.