Climate risks have great economic relevance. The topic should therefore be part of the corporate agenda even without legal pressure and in the company’s own best interests. In our article, we look at the physical risks to your own business and supply chain, external pressure from banks and investors, transition risks with enormous explosive power, and competitive advantages through proactive climate risk analysis. The good news up front: a pragmatic approach to action is possible.
Background
Climate risks have long been a reality for companies.
- According to the World Economic Forum, extreme weather events are the greatest global risk of the coming decade (read more).
- Germany has already warmed by around 2.5 °C, and extreme weather events are on the rise.
- Since 2000, damage caused by extreme weather in Germany has totalled over €70 billion. In 2024 alone, insured losses amounted to €5.5 billion.
Acting in our own best interests
Even without legal pressure from the Corporate Sustainability Reporting Directive (CSRD), which is currently the subject of intense debate and is being watered down for small and medium-sized enterprises, assessing climate risks should be in the best interests of all companies due to their significant economic.
External pressure from banks and investors
Banks and investors are increasingly demanding transparency regarding the climate risks of corporate activities.
- From 2026, for example, the European Central Bank (ECB) will take into account a climate factor that also includes physical and transition risks in its monetary policy and lending (read more).
- As a result, loans to affected companies may lose value or default. Lenders will therefore increasingly demand climate risk analyses from their corporate customers.
- Investors and supervisory authorities will also increase the pressure.
Those who act proactively will secure their access to capital and strengthen the trust of their financial partners.
Physical risks are increasing
Physical climate risks arise from increasingly frequent extreme weather events. Floods, storms, heat waves, and droughts can damage locations, disrupt supply chains, and shut down production.
- For example, low river levels during the drought summer of 2018 in Germany led to impassable transport routes and partial production stoppages in industry (read more).
- Devastating forest fires raged in (southern) Europe in the summer of 2025. This risk will increase significantly in the future due to extreme heat waves and droughts.
- The devastating floods in Valencia in October 2024 are another striking example of the enormous destructive power of climate change.
Practical example: How we were able to help
A medium-sized paper manufacturer operates a plant on the edge of a forest and is heavily dependent on process water from a river. Dry summers increase the risk of forest fires, posing a threat to the plant and the surrounding area. At the same time, drought causes the river level to drop, meaning that there is not enough cooling and process water available. The result would be a (long) production stoppage or expensive emergency solutions. This could jeopardize the business.
The climate risk analysis we conducted helped to identify these risks at an early stage and consider measures such as fire-safe forest management or the company’s own water storage facilities.
Transition risks with enormous explosive power
Transition risks arise from the shift to a low-carbon economy.
- For example, rising CO₂ prices and the Carbon Border Adjustment Mechanism (CBAM), which will come into force in 2026, will make CO₂-intensive production and imports more expensive.
- In addition, stricter product requirements can put pressure on business models. These include, for example, the EcoDesign Regulation, the Digital Product Passport, and the EU chemicals regulation REACH.
- Technological upheavals such as electromobility also show how entire industries are coming under pressure because of this change. Plants and products with a high carbon footprint may lose value or be forced out of the market. The financial and strategic consequences for the company and its business can be significant.
Practical example: How we were able to help
A European printing ink manufacturer produces CO₂-intensively outside the EU. From 2026, the CBAM will make such imports more expensive, as certificates will be required for embedded emissions. As a result, the cost advantage of foreign production will disappear.
But even within the EU, financial expenditure on CO₂ is rising as emissions trading is expanded via the ETS system. Stranded assets are a threat.
Our climate risk analysis has highlighted these risks and provided a solid basis for discussing counterstrategies such as decarbonization, product portfolio adjustments, or relocation.
Be sure to consider the supply chain
Climate risks affect not only your own location, but also the supply chain.
- Extreme weather events such as droughts or floods can paralyze suppliers or disrupt logistics – for example, by making roads, railways, or rivers impassable.
- Time-critical dependencies on individual suppliers in just-in-time models without buffers are particularly risky.
Companies should make their supply chain robust and diversified and review their climate preparedness.
Competitive advantages through proactive climate risk analysis
A forward-looking approach to climate risks pays off strategically. Companies that take early countermeasures are more crisis-proof and can minimize the risk of business interruptions or cost increases due to climate events. Climate risk analyses should already be an essential management tool for corporate governance today. Only those who know their climate risks today can seize the opportunities tomorrow.
A pragmatic approach is possible
Companies can start conducting climate risk analyses without enormous effort.
The focus is on
- identifying the most potentially dangerous risks for their own company and
- assessing their probability of occurrence, severity, and possible financial consequences.
An existing risk management system can provide a good orientation.
We would be happy to discuss specific steps and a pragmatic approach for your company in a personal meeting. Get in touch with us!
