Journal Detail back to listing
Improving Climate Change Risk Assessment
- Mar 16, 2023
- Latest Journal
by Ösund-Ireland MP - February 2023
Introduction
There are two aspects to consider in terms of climate change – the emissions of greenhouse gases (often collectively referred to as ‘carbon emissions’) that contribute to climate change and the vulnerability or resilience of a project, asset, ecosystem or society to climate change. The common response to climate change from business and government is to reduce emissions of greenhouse gases, and the response from developers is to demonstrate how carbon net zero will be achieved. For governments, the additional need to assess, understand and minimise vulnerability or resilience to climate change is largely driven by international commitments, including Article 7 of the Paris Commitment1. However, there is a growing realisation of the additional need to assess and understand the risk of climate change at the business, asset or community level, and to manage this risk by determining the scale of adaptation needed to minimise exposure and vulnerability.
How carbon emissions are assessed and managed to minimise the effects of climate change is not the subject of this article. The focus is on describing how climate change risk is being addressed by business as part of ongoing risk management and by developers as part of preparing a planning application. Three approaches are illustrated based on published guidance and are shown to be similar, as all three are based on standard principles of risk management. The use of a global resource of climate modelling data is described that can support these approaches and make them more robust, using airports as an example.
Climate-related financial disclosure
For business, the need to assess and understand the risk from climate change is increasingly driven by regulation and a requirement to determine the financial materiality of climate change risk as part of financial disclosure. In addition to pension funds and issuers of standard listed shares, UK companies with more than 500 employees and limited liability partnerships with more than 500 employees and a turnover of more than £500 million are now legally required to provide climate-related information annually that is aligned to the Taskforce for Climate-related Financial Disclosure (TCFD) with this becoming mandatory across the economy by 20252. This regulatory requirement is mirrored in a growing number of countries around the world, some impacting in 20233.
TCFD divides climate-related risks and opportunities into two major categories:
• risks and opportunities related to the transition to a lower-carbon economy; and
• risks and opportunities related to the physical impacts of climate change.
Transitioning to a lower-carbon economy may include policy, legal, technology, and market changes to address mitigation and adaptation requirements related to climate change. How a government, business or community responds to this transition may present both risks and opportunities. Transition risks are not the subject of this article. Physical risks resulting from climate change can be event driven (e.g. increased frequency of storms) or a result of chronic shifts in climate patterns (e.g. sea level rise). Physical risks generally present a cost risk, either by directly damaging an asset or indirectly by disrupting a supply chain, for example. However, this is not always the case as the physical effects of climate change will vary by location. For example, climate is both friend and foe to the winemaking industry and may be a desperate battle for some ski resorts4 with the clear implication there will be economic winners and losers. How airports, and the airlines served by them, respond to changes in demand to fly to certain destinations (i.e. a change to the market as a result of physical climate change) also presents both risks and opportunities.
TCFD guidance “does not prescribe specific risk management frameworks or approaches as individual companies are best positioned to determine this given their circumstances. Instead, … focuses on integrating climate-related risks into existing risk management processes”5 . The same guidance (page 16) describes how to integrate climate change into business risk management processes, including an illustrative heat map to assess the likelihood, impact and speed of onset of a range of risks. This heat map is reproduced below as Figure 1. The likelihood scale on the vertical axis includes five ratings (from rare to frequent) refers to the frequency of a climate event occurring which, in most cases, is expected to change in the future. This will vary, hence the speed of onset description represented by the size of the marker. The impact scale on the horizontal axis also includes five ratings (from incidental to extreme) and refers to the magnitude effect that the climate event would have on the business. The combination of likelihood and impact scales enables the climate risk to be classified as either high (red), medium (yellow) or low (green).
Climate change and planning
For developers securing planning approval, climate change is one aspect for consideration as part of an environmental impact assessment (EIA). The UK Planning Inspectorate has published an EIA screening checklist “to help ensure that an authority giving development consent for a project makes its decision knowing the likely effects on the environment”.6
In June 2020, the Institute of Environmental Management and Assessment (IEMA) published relevant guidance7 which highlights the need to consider the design of a development, in terms of how resilient it is to climate change, and how climate change may change how the development operates and may also change the vulnerability of the receiving environment.8 All these factors will influence the conclusions drawn from the climate impact assessment.
With reference to the Planning Inspectorate checklist and IEMA guidance, we can consider the potential impacts of climate change on a proposed development to include:
• How the design, construction, operation or decommissioning of the development is affected, to minimise emissions of greenhouse gases that cause climate change. This may be to comply with building codes, decarbonisation policies adopted by national or local government, or corporate commitments of the developer or investor. Note that corporate commitments may be driven by TCFD aligned financial disclosure or policies of environmental and social governance (ESG).
• How the design, construction, operation or decommissioning is affected to ensure the development is resilient to the changing climate. Most developments have a projected lifetime that extends sufficiently into the future when climate change effects will become more apparent and material. Demonstrating that the development will be resilient to climate change may be required to comply with building codes, national or local climate adaptation policies, and TCFD alignment of financial disclosure by the developer or investor.
• How the presence or sensitivity of environmental receptors may change as a result of climate change, affecting the outcome of the EIA. We should expect different environmental receptors to respond differently to climate change, becoming more or less sensitive (or vulnerable) to the potential impacts of the development that are assessed in the EIA. This is often referred to as an in-combination effect.
The IEMA guidance describes a risk assessment-based methodology for identifying potential climate impacts and assessing their severity. Similar to the TCFD guidance, this methodology requires defining the likelihood and impact (or consequence) and using a matrix to determine the risk. The IEMA guidance is not prescriptive and different definitions of likelihood and impact (consequence) scales can be used with professional judgement and justification. The resultant climate risk can be defined in different ways. For example, significant and non-significant, or ranging from major adverse to moderate adverse to minor adverse to negligible. These qualitative descriptions are subject to interpretation and the guidance refers to the role of the Climate Change Adaptation and Resilience Coordinator to ensure professional judgement is applied. Importantly, and similar to the TCFD approach, is the use of this method to first assess the level of risk and then consider the impact of implementing control measures (or adapting) to reduce the impact (consequence) and hence, determine the residual risk (vulnerability).
Airports and climate change risks
Since at least 2012 the aviation sector has identified climate adaptation and resilience as a key topic for concern. In 2021 the International Civil Aviation Organisation (ICAO) published the Eco Airport Toolkit on Climate Resilient Airports9 which provides a framework methodology for airport stakeholders including managers, owners, operators, airlines and governments, to identify and assess the risks that changes to different climatic conditions may have on airport operations, maintenance and future design changes. The ICAO built on this Toolkit and published a further set of guidance in 202210,11,12 including key steps for climate risk assessment and adaptation planning; see Figure 2.
The ICAO guidance refers to a standard five-by-five risk matrix with the risks of climate change expressed as a function of the probability (or likelihood) of the event occurring and the severity of the consequence of the impacts. This matrix is similar to the one presented in Figure 1. The outcome is often referred to as risk exposure and is a measure of the risk that the airport faces in relation to the climate impact. The level of risk can be reduced by implementing measures of adaptation, hence reducing the residual climate vulnerability of the airport.
The ICAO guidance recommends using airport specific climate change data to determine the likelihood of risk events occurring. This has the potential to limit the need for professional judgement in this step of the process and could be applied also to the TCFD and IEMA approaches.
As an example, the Climate Resilient Airports Assessment Tool (CRAAT13) has been developed by Susteer AB in line with ICAO guidance. The CRAAT methodology for assessing the climate resilience of airports is illustrated in Figure 3 and includes the ICAO’s key stages of likelihood, consequence, risk, adaptive capacity and vulnerability (see Figure 2). An additional step (uncertainty) is included, reflecting Inter Governmental Panel on Climate Change (IPCC) best practice. Figure 3 is revealing, in illustrating the similarities between the TCFD, IEMA and ICAO guidance for assessing climate risk, determining the extent of adaptation required and residual vulnerability. Note that CRAAT uses a quantitative approach to assessing likelihood, which is described below.
Quantified assessment of likelihood
Table 1 compares five examples of approaches to describing the likelihood of a climate event occurring. The TCFD, ICAO, IPCC AR6 (described below) and Highways Agency (HA) approaches all include descriptors, ranging from ‘frequent’ to ‘rare’ or ‘exceptionally unlikely’ for example. The TCFD, ICAO and Canadian risk assessment methodology (PIEVC) include numerical scales, from 1 to 5 or 0 to 7. These descriptors and numerical scales are limited in being able to determine the likelihood of an event occurring. Both the ICAO and HA approaches include a qualitative description of likelihood which support professional judgement if applied in accordance with IEMA guidance. However, more usefully, the ICAO, IPCC AR6 and PIEVC approaches all include quantitative descriptions of likelihood which could also be applied in accordance with IEMA guidance whilst reducing the potential for cognitive bias which may arise with professional judgement.
A typical climate change risk assessment includes summaries of changes in specific variables, over defined climate periods and under future climate projections. The IEMA guidance includes an example, reproduced in Figure 4. How this information is then used to determine the likelihood of climate events occurring is subject to professional judgement or with reference to more detailed data. The likelihood of a climate event occurring can be determined from a statistical analysis of climate modelling output from the Coupled Model Intercomparison Project (CMIP614) that brings together a global resource of climate models and is used to underpin the lnter-Governmental Panel on Climate Change (IPCC) assessment reports.15 The Met Office is one of the research centres that participates in the CMIP and provides access to UK specific data in both summary and raw data formats in addition to the CMIP6 data. 16
An example of climate model output would be the maximum daily temperature at a location for every day of the year up to 2100AD. Depending on the location, this output might be available from 20 to 30 climate models in the CMIP. Using this information first requires defining a climate event in terms of:
• Intensity, e.g. maximum daily temperature, daily precipitation, etc.;
• Magnitude, e.g. >40oC, < 0.1 mm, etc.; and
• Duration, e.g. maximum 1 day, 5 consecutive days, etc.
This definition relates to the consequence of a climate change event. For example, if an air conditioning system has a safety shut off feature based on temperatures exceeding 45oC for a period of at least three days. With this information, we can interrogate the ensemble of climate model output to determine the likelihood of this event occurring over a specific time period. The IPCC refers to climate periods of near (2021-2040), mid (2041-2060) and long term (2081-2100). Periods relating to business plan cycles, the lifetime of the asset or planning policy horizons could be used.
Table 1 illustrates there are different scales that can be used to describe likelihood and the guidance cited in this article do not prescribe any one method. However, by providing clear numerical definitions of the likelihood scale adopted, a quantitative approach can be used, based on the ensembled output of available climate models. This is the approach adopted by CRAAT, which uses site-specific climate change data extracted from the CMIP6 archive to provide a quantitative description of the likelihood of climate events occurring at any airport in the world. The potential for error in the risk assessment as a result of variations in professional judgement being applied at individual airports is reduced. This is a pertinent point as The consequences of climate change at different airports and the local economies they serve can be very different, as illustrated by the examples of skiing and wine growing referred to earlier.
Conclusions
The need to assess the risks of climate change are clear. For business it is an external risk with potential positive or negative financial materiality. From 2025 all businesses in the UK will be required to disclose their assessment of climate risk as part of financial reporting. For developers, assets need to be designed to be resilient to future changes in the climate in addition to ensuring the assessment of potential environmental impacts properly considers the impact of climate change. As dynamic, and nationally significant or critical infrastructure, airports need to consider climate change risks both as a business and as part of ongoing development.
This article provides an overview of how three sets of guidance, each with different audiences and objectives, all converge to a similar approach for assessing and managing climate change risk. There is no single definitive, prescriptive approach and this is not expected to change. Implicitly, climate change risk should not be treated as ‘special’ and a more robust assessment will be made if existing risk management or impact assessment framework methodologies are used. Access to data describing how the climate may change at a particular location is improving, enabling a quantitative assessment the likelihood of climate events occurring. This represents an improvement over the qualitative or semi-quantitative assessments currently used along with professional judgement.
References
1. An overview of the requirements for all Parties to engage in adaptation planning and implementation as appropriate is available on-line at https://unfccc.int/topics/adaptation-and-resilience/the-big-picture/new-elements-and-dimensions-of-adaptation-under-the-paris-agreement-article-7. The UK’s Adaptation Communication to the UNFCCC is available on-line at https://www.gov.uk/government/publications /the-uks-adaptation-communication-to-the-united-nations-framework-convention-on-climate-change-unfccc-2020. Note that the UK Government is required by the Climate Change Act 2008 to produce a UK Climate Change Risk Assessment to identify risks, followed by a National Adaptation Programme to address those risks every five years.
2. The Institute of Chartered Accountants in England and Wales (ICAEW) provides a useful overview of TCFD and explains how it fits within UK reporting requirements, available at:
https://www.icaew.com/technical/ non-financial-reporting/tcfd-and-related-uk-reporting-regulations#:~:text=The%20TCFD%20is%20the%20Task,change%20will%20affect%20their%20business
3. See Section D of the 2022 Status Report of the Taskforce for Climate-related Financial Disclosures (October 2022) available on-line at https://assets.bbhub.io/company/sites/60/2022/10/2022-TCFD-Status-Report.pdf
4. Numerous articles have been published on the effects of climate change on wine production and viability of ski resorts. See, for example: https://www.zurich.com/en/media/magazine/2021/how-does-climate-change-affect-wine, https://www.businessinsider.com/sweden-wine-industry-climate-change-2021-1?r=US&IR=T, https://www.cbc.ca/news/canada/edmonton/
the-complex-relationship-between-climate-change-and-the-ski-industry-1.6693987 and https://www.nationalgeographic.com/environment/article/alps-ski-resorts-desperately-battling-climate-change-local-resistance
5. See Figure 2, Task Force on Climate-related Financial Disclosures Guidance on Risk Management Integration and Disclosure, October 2020 available on-line at https://assets.bbhub.io/company/sites/60/2020/09/2020-TCFD_Guidance-Risk-Management-Integration-and-Disclosure.pdf
6. This checklist has been published in support of the Town and Country Planning (Environmental Impact Assessment) Regulations 2017. Questions 8.1 and 15.1 in the checklist specifically refer to climate change or climatic conditions. However, many of the questions refer to potential impacts that could be affected by climate change. For example, question 10.2 refers to the presence of protected, important or sensitive flora and fauna, which is very likely to be affected by climate change regardless of the development. https://www.gov.uk/government/publications/environmental-impact-assessment-screening-checklist
7. IEMA (2020) Environmental Impact Assessment Guide to: climate change resilience and adaptation, available on-line at https://www.iema.net/resources/reading-room/2020/06/26/iema-eia-guide-to-climate-change-resilience-and-adaptation-2020
8. The UK Climate Risk website (https://www.ukclimaterisk.org) provides useful information that can be referred to in determining the vulnerability of the existing environment, including relevant freshwater and terrestrial habitats, flooding and coastal change, energy and transport infrastructure, and different economic sectors such as agriculture. The UK Climate Risk website also includes examples of Climate Change Adaptation Reports for Airports which can be compared to European studies (e.g. https://climate-adapt.eea.europa.eu/en/metadata/adaptation-options/adaptation-measures-to-increase-climate-resilience-of-airports).
9. ICAO (2021) Eco Airport Toolkit: Climate Resilient Airports, International Civil Aviation Organisation, published on line at https://www.icao.int/environmental-protection/Documents/Climate%20resilient%20airports.pdf
10. ICAO (2022a) Climate Change: Climate Risk Assessment, Adaptation and Resilience: Key steps in Aviation Organisation Climate Change Risk Assessment and Adaptation Planning, published on line at https://www.icao.int/environmental-protection/Documents/Climate%20Risk%20Assessment%20and%20Adaptation%20Report_Key%20Steps%20Risk%20Assessment_final.pdf
11. ICAO (2022b) Climate Change: Climate Risk Assessment, Adaptation and Resilience: Key Climate Change Vulnerabilities for Aviation Organisations, published on line at https://www.icao.int/environmental-protection/Documents/Climate%20Risk%20Assessment%20and%20Adaptation%20Report_Key%20Vulnerablities_final.pdf
12. ICAO (2022c) Climate Change: Climate Risk Assessment, Adaptation and Resilience: Menu of Adaptation Options, published on line at https://www.icao.int/environmental-protection/
Documents/Climate%20Risk%20Assessment%20and%20Adaptation%20Report_Menu%20of%20Adaptation%20Measures_final.pdf
13. An overview of how CRAAT works is provided in: Ösund-Ireland MPP, Powell AJ, Ireland CJ (2022) A Global Approach to Assessing the Climate Resilience of Airports, 33rd Congress of the International Council of Aeronautical Sciences, Stockholm, Sweden, 4-9 September 2022 (https://icas.org/ICAS_ARCHIVE/ICAS2022/data/papers/ICAS2022_0922_paper.pdf). More information, including an introductory video, is available at www.susteer.com.
14. A full description of CMIP6 is available at https://www.wcrp-climate.org/wgcm-cmip/wgcm-cmip6.
15. Extensive information is available on the work of the IPCC at https://www.ipcc.ch/assessment-report/ar6/
16. UK climate projections are available at https://www.metoffice.gov.uk/research/approach/collaboration/ukcp
Author
Matt Ösund-Ireland is a registered Expert Witness on carbon, climate change and air quality management. Please direct any comments or questions to
matt.osundireland@susteer.com
or visit www.susteer.com for further information.
