The growing climate risk

The threat of climate change presents new financial challenges for us all. Take natural disasters, for example: In 2021, natural disasters caused total losses of $280 billion. The most costly event was Hurricane Ida, which alone accounted for $65 billion in damages. In Germany, flash floods caused by heavy rainfall resulted in approximately €8.2 billion in damages, marking the most expensive impact of climate change in the country to date.

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These catastrophic natural disasters are a reason for companies to commit themselves to climate strategies at national and international level. But there are many other incentives for companies:

• Supply chain threats
• Government requirements
• Pressure from stakeholders, such as customers, employees and investors.

Climate protection measures are being implemented across every sector — a rapid development similar to the early days of digitisation. The financial market, of course, is not exempt from these challenges and must remain resilient as legal and regulatory measures drive the shift away from fossil fuels.

Why climate risks are relevant for investors

As the predicted and already noticeable risks of climate change attract increasing investor attention, experts warn of the largest restructuring of capital in history, leading to a radical transformation of value pools that will create new market leaders and losers. A PwC report estimates that by 2026, ESG-focused institutional investments will be worth up to $33.9 trillion.

”Climate change has become a decisive factor for companies' long-term prospects... Climate risk is an investment risk. As trustees, it is our job to help our customers master this change. We believe that sustainable and climate-integrated portfolios can offer better risk-adjusted returns.”

Larry Fink — CEO of BlackRock
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Investors have long been calling for frameworks with clear criteria for assessing climate change and its consequences for the financial sector in order to provide transparent insight into a company's prospects. In 2020, 631 investors who manage more than 37 billion dollars signed a global investor statement, which was presented to governments around the world. The aim was to improve climate-related reporting and “commit to implementing the TCFD recommendations in their countries.” To date, most companies in the EU have carried out climate change reporting on a voluntary basis - but from 2024 to mid-2026, the new EU guidelines on sustainability reporting (Corporate Sustainability Reporting Directive, CSRD) and this reporting is becoming mandatory for most large companies.

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What are the different types of climate risks?

Analysing climate risks is very complex for companies.

First, there are acute physical risks, such as damage caused by extreme weather events like storms or floods. However, chronic physical threats, such as rising sea levels, temperature changes, or increasing droughts in certain regions, are also being analyzed. These risks jeopardize locations, supply chains, and entire value creation networks — both in the short and long term.

The path to climate neutrality also introduces a variety of so-called "transition risks" — financial risks that arise directly or indirectly from the process of adapting to climate change. These include:

• Increasing energy and raw material costs in the value chain
• Regulatory risks, such as government control of emissions trading
• Legal risks, such as laws or sanctions
• Risks to a company's reputation due to changing consumer attitudes

With so many uncertain factors, it is not surprising that a comprehensive review of the various risks and plans to minimise them is becoming increasingly important for investors.

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Increased importance for food companies

Companies in the food industry are particularly vulnerable to climate change risks, with the greatest exposure lying in the upstream value chain. The agricultural sector, as one of the first industries, is already experiencing the strong effects of climate change. "Transition risks" for the food industry are also significant, as food production accounts for ¼ to ⅓ of global greenhouse gas emissions, depending on the source. For food companies, assessing both internal and external climate risks is therefore a major challenge and crucial for ensuring their long-term viability.

Regenerative agriculture is a solution strategy to mitigate these risks, which signals to investors that your company is committed to supply chain resilience. Klim helps implement regenerative measures in the supply chain to reduce the climate impact of your food production and increase the resilience of crops against the effects of climate change. When properly implemented, regenerative agriculture is an opportunity to increase supply security in a rapidly changing climate.

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Learn here more about how Klim can help you as a partner to make your supply chain more resilient to climate risks.

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