Climate Risk & ESG Risk

What is Climate Intelligence and How Does It Affect Businesses?

Roshni Khatri

23rd May'23
What is Climate Intelligence and How Does It Affect Businesses? | OpenGrowth

Climate change has a negative influence on practically every facet of life, including workforce efficiency, overall wellness, and finance globally. It also impacts our world's ecological diversity. Since the beginning of the millennium, the United Nations Framework Convention on Climate Change (UNFCCC) has been disseminating information on climate-related dangers, but most people have not fully understood its significance. However, the topic is also gaining significant attention as the repercussions of global warming become more obvious.

Recently, there has been a lot of focus on climate change's effects on corporate businesses and supply networks. The need to comprehend and express the danger of climate change to corporations, as well as propose measures to lessen these issues, has grown as a result of the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. To satisfy these expectations, a brand-new field called climate intelligence (CI) has arisen. Climate intelligence creates insights for climate mitigation and adaptation using historical and current data. Let's explore more about it!


What do you understand about climate intelligence?

Climate intelligence is business intelligence for managing climate risk and opportunity at the asset level. It is described as "historical, current, and forecasting data on our biological and built networks used to power insights for addressing climate change and adaptation" by the World Economic Forum (WEF). It's a general term that encompasses a range of climate study services, with varying levels of depth and detail. Our shifting environment affects how we live and work. Over time, these shifts will only accelerate, posing problems for every sector of the economy and business. 

The world's financial system lost US$329 billion due to weather and climate-related disasters in 2021 alone. The most costly calamity on the continent was floods, which cost insurance companies US$13 billion. Climate information will help businesses standardize their assessments of environmental risk. It will spark fresh debates, and promote an open and shared discourse on opportunities and risks focused on shared assets.

According to IDC's Market Perspective - Climate intelligence, individuals must make CI a "strategic priority" today and in the future. "Companies and organizations need climate intelligence and knowledge not only for managing climate-related risk to their greatest assets but also to help them respond to future hazards and find inventive possibilities as a result," the report said. In short it is essential to follow the trends in environment and sustainability to have a safe future. 


How does climate change affect your business?

The built and natural environments, as well as our weather, are all impacted by climate change. These effects are regional, and how they affect your company will change based on your sector, location, and exposure. Climate change effects on several natural catastrophe occurrences, such as exposure to lack of moisture, bushfires, and storms in a matter of days, add complexity. 

Direct or indirect effects of the changing climate on business include:

  • Extreme weather or climate change knock-on consequences, such as supply chain interruption or revenue decline, are called indirect impacts. An illustration of this is how the South Coast economy was affected by fewer tourists after the black summer bushfires of 2019–20.

  • It is important to identify climate hazards in your industry and region. This is because firms are different in terms of its location, operations, and supply chains.


Repercussions for medium-sized enterprises

Medium-sized businesses are exposed to climate risk depending on their industry and its sensitivity. Climate-related hazards, such as disruptions to supply chains, difficulties with comfort and energy efficiency in buildings and other activities, and climate-related liabilities, might affect medium-sized businesses. It's crucial to comprehend how climate change affects employee health and welfare.

Firms in the ag, forestry, and fisheries industries are particularly vulnerable to climate change. The environment is essential to these companies' activities. However, other industries like manufacturing, retail commerce, and tourism are also quite susceptible, putting all forms of business in danger from climate change. 


Consequences for small enterprises

The NSW economy depends heavily on small enterprises. They offer necessary services, promote local employment, and add to the character of locations we like. The wider community may be affected when small enterprises are negatively impacted by climate change.

Extreme weather conditions and other climate change consequences can seriously disrupt small businesses. The frequency and intensity of weather events are both rising due to climate change. Businesses are put under additional stress since they can be subjected to several extreme occurrences, including drought, bushfires, and floods, in quick succession. Depending on the business's sensitivity, industry, and location, these have varying effects. 


Why is climate change a threat to business?

The answer is simple. Numerous studies indicate that it might harm businesses' financial health. According to the trajectory we're on, a four-degree increase in global temperatures by 2100 may cause severe storms, flooding, and droughts, upend small businesses, and cause financial instability. 

CitiGroup research shows global warming may cut GDP by $72 trillion. A paper published in Nature revealed that it could also lower typical wages by a fifth. Additionally, industries including agriculture, real estate, wood, and developing market stocks would suffer from a four-degree Celsius increase. All things considered, that would create a hostile environment for both large and small firms. 

Companies worldwide have resisted greening for a long time. Their defense? Simply put, we cannot afford it. However, a sharp decline in the cost of environmentally friendly technology, particularly renewable energy, and the emergence of carbon pricing, which penalizes companies for producing greenhouse gases, have altered this assessment. Companies are increasingly turning to climate-smart investments since they are not just the right thing to do, but also profitable. 

Money invested in lowering greenhouse gas emissions had an internal rate of return of 27%, according to recent research that examined a sample of 1,700 top multinational companies. This showed that such efforts paid off. According to other research, including a Harvard study, businesses that value social and environmental sustainability perform better than those that don't. Companies are also aware of the need to factor in regulatory risk and governments are actively controlling the shift to renewable energy sources in the development of their business plans. For this reason, the private sector wants more solid laws and regulations, long-term pricing signals, and a price for emissions. 


Climate intelligence tool

Climate intelligence can mitigate the impact of climate change. A standard and scientifically based picture of risk is presented across millions of global assets at the individual level by an AI-powered product suite, which offers dynamic, cloud-based climate intelligence. This intelligence combines climate data with earth science knowledge, data modeling, and machine learning. By evaluating the likelihood of asset default and loss damage, Futureproof estimates climate and physical risks for insurers, asset managers, and banks. Climate intelligence, on the other hand, uses artificial intelligence to assist farmers in making defensible choices about how to effectively plant, produce, and harvest crops. This is in response to shifting temperatures and weather patterns.


To conclude we can say that for businesses to more precisely and simply grasp the environment's risks and possibilities, they need access to climate intelligence. More governments and regulators should require disclosure of climate risks and advocate for solid, standardized frameworks to direct essential solutions. For this technology to be user-friendly and broadly accepted, the public and private sectors will also need to provide funding and collaborate with early-stage climate intelligence providers to create risk-response use cases and business applications. Additionally, we should follow the  principles of a green economy to protect the planet. 


OpenGrowth is constantly looking for innovative and trending start-ups in the ecosystem. If you want more information about any module of OpenGrowth Hub, let us know in the comment section below.

A keen observer, who loves to spend time with nature. A fun loving person, enjoys to explore the new aspects of life. Passionate about reading and learning new things. Roshni is dedicated towards her work and has worked in different professions.


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