Climate risks are no longer a niche topic—they are an integral part of financial and insurance practice. Today, companies find themselves facing three distinct pressures:
Physical risks posed by heat waves, droughts, floods, and other extreme events directly threaten production, infrastructure, and supply chains. According to Munich Re, natural disasters caused approximately $320 billion in damage in 2024 alone, with over $6.9 trillion in losses incurred over the past few decades—and only just under a third of that was insured.
Transition risks, such as carbon pricing, market shifts, technological disruptions, and regulatory interventions, are changing asset valuations and corporate strategic decisions.
Financial and Regulatory Implications:
The European Central Bank (ECB) has identified climate risks as a systemic threat to financial stability and requires banks to incorporate these risks into their credit, capital, and risk models. Starting in July 2025, a “climate factor” will be incorporated into the ECB’s collateral framework—meaning that climate-exposed assets will lose value as collateral.
From the perspective of the insurance industry—and Munich Re in particular—rising claims costs due to climate-related events are a key driver. Munich Re has been conducting intensive research on climate risks since the 1970s and warns of increasing claims and liability risks for unprepared companies.
Accordingly, a climate risk analysis is not only environmentally relevant but also economically essential —it determines access to capital, insurance coverage, and long-term competitiveness.
What is a climate risk analysis?
Climate risk analysis refers to the systematic assessment of the impacts of climate change on a company. It takes into account both physical risks (e.g., floods, heat waves, supply chain disruptions) and transition risks (e.g., new regulations, carbon costs, reputational risks).
The goal: an integrated decision-making framework that links climate data, scenarios, and business processes.
Key distinction:
Physical risks → direct consequences of climate change, such as extreme weather or infrastructure failures
Transition risks → indirect consequences of the transition to a climate-neutral economy (e.g., carbon pricing, technological shifts, market shifts)
[Placeholder for graphic: “Categories of climate risks (physical vs. transition) with examples”]
Comparison of the two main categories— physical risks and transition risks —presented clearly and concisely, suitable for inclusion in blog posts or slides. Content for each category listed as bullet points (based on a competitor’s structure).
Physical risks
Direct impacts of climate change on locations, assets, and supply chains; acute (event-driven) or chronic (long-term changes).
Heat waves – Loss of productivity, cooling and water requirements, quality issues.
Extreme storms – Damage to buildings/facilities, business interruptions.
Flooding – Logistics disruptions, damage to goods and warehouses, and longer recovery times.
Landslides – Threats to transportation routes, sites, and supply routes.
Financing & Insurance – Banks and the ECB are incorporating climate risks; insurers are adjusting premiums and coverage.
Regulatory Framework: CSRD, ESRS & TCFD
Regulatory requirements are making climate risk analyses increasingly mandatory:
CSRD & ESRS E1: Companies must systematically identify, assess, and report on climate risks.
TCFD (Task Force on Climate-related Financial Disclosures): an international standard for climate risk reporting that is now widely required.
EU Taxonomy: explicitly requires the assessment of physical and transitional risks.
ECB Guidelines & Banking Supervision: Financial institutions must incorporate climate risks into their credit and portfolio assessments.
Note: The ongoing omnibus procedure of the European Union (trilogue negotiations) is currently still causing uncertainty, for example regarding definitions, reporting requirements, and transition periods. Companies should therefore view their climate risk analyses as a dynamic process and review them regularly once the final decisions have been published.
[Placeholder for table: “Overview of Regulatory Requirements – CSRD vs. ESRS E1 vs. TCFD”]
The 6 Steps to a Successful Climate Risk Analysis
1. Define the business context and objectives
Identify relevant locations, processes, and products
Alignment with climate targets and transformation plans (SBTi, CSRD)
Integration into existing risk management systems
6. Reporting & Monitoring
Integration into CSRD reporting
Regular Updates & Rebaselining
Internal Communication to the Executive Board, Supervisory Board, and Employees
Checklist – 6 Steps to Climate Risk Analysis | Five Glaciers Consulting
Checklist • Five Glaciers Consulting
6 Steps in Climate Risk Analysis
Detailed step-by-step diagram. Clear bullet points, practical instructions, and color-coding for each step. Please include timeframes as a separate note below the diagram.
Step 1 · Context & Objectives
The foundation of the entire analysis: determining what is being examined and why.
Define the scope – Identify locations, supply chains, business units, and products.
Prepare the organization – Define roles, train employees, and involve suppliers.
Step 6 · Reporting & Monitoring
Continuously monitor, report, and adjust.
Comply with reporting requirements – Report in accordance with CSRD/ESRS and TCFD.
Monitor key performance indicators – Implement KPIs and tools, ensure data quality.
Schedule update cycles – Regular reviews, adjustments as needed.
Common pitfalls—and how to avoid them
Underestimating Scope 3: Supply chain risks often account for more than 70% of emissions.
Focusing only on physical risks: Transition risks are often more financially significant.
A one-time analysis rather than a continuous process: Climate risks evolve dynamically.
Lack of governance support: Without a board resolution, the analysis will have no effect.
Best Practice: Climate risks belong in the central risk management framework —not in a standalone sustainability report.
Deep Dive: Transition Risks in Detail
While physical risks are often visible and have an immediate impact, transition risks unfold more subtly—and can have even greater economic consequences for companies. They arise from the global transition to a climate-neutral economy and affect nearly all industries.
Key drivers of transition risks:
Regulatory measures: Introduction of carbon pricing, stricter emission limits, new reporting requirements (CSRD, EU Taxonomy, Supply Chain Act).
Market shifts: Customers and business partners are increasingly favoring climate-friendly products and services. Companies that fail to respond are losing market share.
Technological disruptions: Decarbonization technologies, renewable energy, electric mobility, and circular economy models are replacing established processes.
Financial risks: Banks and investors are taking an increasingly critical view of business models exposed to climate risks. Companies without a climate strategy face less favorable financing terms or lose access to capital.
Reputational risks: Stakeholders are demanding transparency. Companies that fail to meet their climate commitments risk a massive loss of trust.
Example: An energy-intensive manufacturing company might not face an immediate risk of flooding, but could still run into trouble if rising CO₂ prices cause operating costs to skyrocket and competitors switch to lower-emission technologies early on.
Conclusion: Climate risk analysis as a strategic lever
A thorough climate risk analysis is more than just a regulatory requirement. It is a strategic management tool designed to:
to ensure the company's resilience
Reliably meet the requirements of the CSRD and ESRS
Convincing investors, banks, and insurers
Seizing the opportunities of the transition to a climate-neutral economy
Support from Five Glaciers Consulting
As a consulting firm specializing in sustainability and climate strategies, we help companies conductclimate risk analyses at various levels of detail —from a quick risk overview to detailed scenario analysis in accordance with TCFD, NGFS, and IPCC guidelines. A key benefit:
Under Module 5 of the BAFA funding program (“Transformation Plans”) , you can receive funding for climate risk analyses—thereby significantly reducing your investment costs.
If you’d like to learn how your company can develop a climate risk analysis that meets regulatory requirements while also taking advantage of grants, please contact us directly.
