Climate Risk for Business: 9 Actionable Principles to get started (AASB S2)

Australian businesses now face new climate-related financial reporting requirements. While Scope 1, 2, and 3 emissions accounting is a start, it only covers a small portion of the AASB S2 standard. The more substantial challenge lies in conducting robust climate risk assessments and scenario analyses—areas that remain unfamiliar for many corporate sustainability teams. For those just beginning this journey, knowing where to start and how to meet these complex expectations can feel overwhelming.

I've been developing a physical climate risk assessment process from scratch over the last few weeks, and want to share 9 principles I follow for this component that may assist others undertaking this vital work. For in-house teams, especially those navigating this alone, it can feel intimidating to begin. My aim with these principles is to offer a pragmatic yet ambitious approach – helping you build a minimum viable process quickly, with clear steps, while still addressing the significant scope of the challenge.

🔍 BUILDING THE EVIDENCE BASE

1. Prioritize Local Data Where Possible; Supplement with Regional. While starting with readily available regional data can provide a broad overview, I believe that if the risk doesn't feel close to home (or rather, close to business operations), it may not be taken with the necessary seriousness. Local relevance spurs mindset shifts and action. Therefore, prioritize fetching zip-code level data where available. Plenty of free and freemium services allow you to type in an address and get downscaled climate risk estimates – For Australia, use Climate Council; for the US, ClimateCheck, or YourClimateRisk. Use them all, and decide later which ones are more or less useful. If your company operates hundreds of sites, chasing hyperlocal resolution everywhere may not be immediately feasible. In such cases, trade resolution for comprehensiveness: use broader regional-level datasets like those from the World Bank Mean Projections Expert to cover all locations. Then, as you find more hyperlocal datasets, consider weighting the data – for instance, giving a 75% weighting to higher-resolution, zip-code level data compared to broader regional forecasts.

2. Get as quantitative as possible. Put a number on potential impacts. Forward-looking statements and opinions may not shift a risk register to be truly ESG-inclusive. Numbers will. For physical risks, track down and document evidence from the recent past (going back 3-5 years) that physical disruptions have happened to your facilities or supply chain or fairly close to it (e.g., in a neighboring state or district). Ask concerned departments to describe the impacts and if they can, put a dollar price on that disruption, and use it in your estimates for the future. While most whitepapers from consulting firms or regulatory bodies cite broad statistics for industry at large (often geared towards the financial sector) to make the case for climate risk, I've found these consistently fall short on industry-specific relevance. This remains a significant challenge. Therefore, prioritize finding numbers that directly apply to your company's sector and size – it's an ongoing, vital search that will make your assessment far more impactful.

3. Forget the uncertainty range. Use the mean and get going. When pulling in climate data, you'll see means, max, mins, and medians for variables like rainfall and temperature. Just start with the mean. It's the most probable and easiest to justify when you're just getting started. Uncertainty ranges can come later. As scientists, we're trained to express caveats and the remaining inaccuracies in our data. However, for internal communication, this perfectionist attitude often delays or complicates getting the essential message across. The numbers already indicate a serious situation with high confidence, even if the absolute worst-case scenarios have a broader confidence interval. Focusing on the probable mean allows for immediate, actionable steps.

🗣️ CONVEYING RISKS

1. Stick to short and medium-term horizons — up to 2050. We like to extol the virtues of long-term planning in our sustainability circle, but the reality is, people are often unable to conceptualize risk 80 years out. Even our own risk register calls anything over 10 years “long term.” So choosing 2050 as a signpost year for the risk assessment makes sense: it's neither too immediate to be short-term, nor too distant to be difficult to envision. Additionally, I’ve found 2050 is the most frequently represented year across all the datasets I’ve incorporated. We are now closer to 2050 than to 2000, and 2050 will arrive more quickly than you expect. I wager that most businesses want to stay abreast of their market in the next 25 years.

2. Express hazards and their likelihood in easy-to-envision terms. It’s very easy for managers to envision what the next year will look like and how many times a tangible event X will occur. X could be a threshold breach, like if the temperature goes above 40∘C, or an event (e.g., heatwave) is declared by the meteorological authority where your business operates. It’s easier to convey "25 very hot days per year in 2050" or "3 heatwaves will occur per year by 2050" than to explain probabilities and percentiles.

3. Don’t assume the future will look like the past. Our task isn’t to guess what will or will not happen. It’s to consider what could happen, in all scenarios, even the ones that seem uncomfortable or too far-fetched. This principle is also part of the advice I’ve been listening to in many webinars. Instead of your team potentially underestimating future impacts because "it hasn't happened before," approach this with a pragmatic outlook: your work is about presenting a comprehensive picture of potential futures, grounded in data, not predicting certainties. When surveying your team about consequences, explicitly ask them to consider potential consequences of climate-driven hazards even if they seem unlikely based on their past experience.

4. Drop the sustainability jargon. Call it “risk management” or “resilience planning,” not “scenario analysis.” Speak in terms that people who aren’t formally educated in “environmental science,” “sustainability,” or “ESG” use, but understand business speak. Frame your findings in terms of what truly matters to them: operational continuity (e.g., machinery stopping, production lines halted), supply chain stability (e.g., delays in shipping product to customers, raw material shortages), or financial viability (e.g., increased insurance premiums in certain locations, damage to assets). Go beyond the term "climate-related physical risk," and explain how extreme weather could disrupt production, impact employees' ability to work (creating an OH&S risk), or drive up costs. This connects directly to their existing understanding of business challenges and their bottom line.

🤝 GETTING BUY-IN

1. Engage on both operational and strategic levels of your organisation. Work both sides: General Managers for operational insight, and C-suite for strategic alignment. This dual engagement is crucial, not just for compliance with new standards like AASB S2, but also to significantly strengthen existing risk management practices and evolve scenario analysis capabilities across the business. For GMs, show them how their vital operational data directly contributes to meeting critical high-level legislative requirements, reinforcing that this is a top-priority initiative their leadership is actively across. For the C-suite, translate ground-level risks into tangible financial benefits and competitive advantages, demonstrating how proactive adaptation can protect assets, ensure market access, maintain investor interest, and even unlock new revenue streams or enhance brand reputation. Present a clear return on investment (ROI) for climate resilience initiatives.

2. Find the early adopters who can advocate for your work. Find the people who show genuine interest and bring them in early. These are individuals within the business who intuitively see how climate risk assessment benefits their own operations, even if they hadn't explicitly thought about it before. They become your early adopters, naturally evolving into champions who advocate for your work, even when you're not in the room. For example, my champion in Logistics proactively introduces me to our freight partners and shares with me disruptions to freight movements, because she understands how climate-related or other ESG-related insights can directly improve her department's resilience. I also have a key early adopter in Finance who I bounce ideas off of. He started by lending his Excel wizardry for other projects, and now offers crucial guidance as we navigate the AASB S2 standard collaboratively.

To fellow in-house professionals, I genuinely hope these principles prove useful. I've shared them because I know, from conversations I've had, that many companies are operating with lean or one-person teams navigating this complex journey. Connecting with my peers in the industry and getting their advice has also proven invaluable along the way.

What strategies have you found most effective in navigating these challenges and getting your climate risk initiatives off the ground? I'd genuinely appreciate reading your insights and successes in the comments below.

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