Climate risks are a stress test for your business

A flash flood that brings your production site to a standstill. A heatwave that wipes out your supplier's harvest. Or an investor who requires insight into your climate footprint before committing capital. Climate change is no longer a future concern for businesses. It's a business risk with real consequences for operations, supply chains, and investment decisions today. A climate risk assessment helps you identify vulnerabilities early, enabling you to make informed decisions and build a more resilient business.

"The impact of climate change on businesses is no longer a theoretical exercise," says Jasmien Doevenspeck, Senior Sustainability Advisor at KPMG in Belgium. "It can directly affect revenue, investment decisions, and business continuity. That's why more and more companies are treating climate not just as a sustainability issue, but as a strategic business factor that shapes decision-making."

These risks fall into two broad categories. Physical risks arise from the changing climate itself. "For Belgium, flooding is the most significant climate-related hazard, alongside heatwaves and drought," says Kobe Geryl, Senior Manager Sustainability/ESG at KPMG in Belgium. "How exposed your business is to these physical risks largely depends on your location. Their impact is then determined by how vulnerable your assets and operations are."

Transition risks, meanwhile, stem from the shift to a low-carbon economy. And they can emerge where you least expect them. "Take a company supplying the pharmaceutical sector," says Geryl. "A competitor offers the same product, but with a carbon footprint that's 75% lower. Large pharmaceutical companies have climate targets of their own and switch to that competitor instead. You lose market share, even though the quality of your product hasn't changed. We're already seeing this happen today."

A climate risk assessment starts with a company's locations and operations. For each site, experts identify the climate hazards that are most relevant. They then use climate models to assess the expected impact under different emissions scenarios and time horizons. "For example, we assess the flood depth a specific location could face by 2050," explains Doevenspeck. "We then evaluate how vulnerable that site is, based on its assets, infrastructure, and operations."

According to Geryl, a climate risk assessment is not a crystal ball. "A climate model won't predict geopolitical disruptions like those in the Strait of Hormuz. But it does force you to ask the right 'what if' questions. What if this happens? What should we be prepared for? And what can we do today to reduce that risk? That's where the real value lies."

The assessment goes beyond simply identifying risks. It results in an adaptation plan to help manage the physical impacts of climate change, as well as a transition plan that outlines how the company will reduce its emissions and align its products, energy choices, and operations with a low-carbon economy.    

Regulators are also pushing companies in this direction. The European Corporate Sustainability Reporting Directive (CSRD) requires organizations to disclose climate-related risks. The EU Taxonomy helps steer capital towards sustainable activities. And the new Critical Entities Resilience Directive focuses on companies that are essential to society, such as those in water supply, transport, and healthcare.

"Even small and medium-sized enterprises without large budgets can already take steps today," says Geryl. "For example, through the Flemish government's climate portal, you can zoom in on your address using the IMPACT tool. It shows which climate impacts are relevant at that location, both today and in the future."

"The earlier you take the first step, the more options you have," concludes Doevenspeck. "Those who wait will see those options disappear one by one. A climate risk assessment not only reduces risks, it also reveals opportunities. That makes it a strategic building block for the future."