Companies in Germany are facing new challenges: Starting in 2025, the Corporate Sustainability Reporting Directive (CSRD) requires large and listed companies to systematically integrate climate risks into their decision-making processes. This covers topics such as physical risks (e.g., flooding) and transition risks (e.g., costs from CO₂ reduction). The goal is to make the impacts of climate change on companies and their contribution to climate protection transparent.
Key points:
A structured approach to climate risks is crucial for meeting legal requirements, convincing investors, and remaining competitive in the long term. The provided checklist helps implement these requirements step by step.
This checklist provides you with a structured guide on how to systematically integrate climate risks into your business processes. Below, you'll find the most important steps for incorporating climate risks into your business decisions.
Start with a systematic assessment of all relevant climate risks. Distinguish between physical risks – such as flooding or long-term temperature increases – and transition risks that arise from the shift toward a low-carbon economy.
Mapping your supply chain is a central step in understanding transition risks. Analyze your stakeholders, supplier relationships, costs, timeframes, and information flow. For example: Floods in China led to billions in damages and demonstrate how vulnerable global supply chains can be.
Additionally, you should examine how frequently and intensely climatic hazards occur in the regions where you operate. Use climate scenarios and assess the potential impacts on your assets as well as the financial implications and adaptive capacity.
The double materiality analysis according to the European Sustainability Reporting Standards (ESRS) is a central component of CSRD-compliant reporting. It helps not only with risk management but also with meeting regulatory requirements.
This involves two perspectives: First, analyze how your activities affect the climate (impact materiality). Then examine how climate risks could influence your financial performance (financial materiality). Both perspectives together provide a comprehensive picture of the climate risks relevant to your company.
Document your assessment criteria and thresholds clearly and comprehensibly. This analysis should be updated regularly, as both external climate conditions and internal business structures are constantly changing.
Perform both quantitative and qualitative assessments to prioritize risks. Use scenario analyses to better estimate possible future developments. It's particularly important to understand the drivers of transition risks along your value chains and identify which systems are particularly vulnerable.
The numbers speak for themselves: Since 2000, climate damages have cost over $3.6 trillion worldwide. Extreme weather events rank among the greatest risks, directly behind armed conflicts.
Climate risks should be integrated into existing enterprise risk management systems, using standards such as ISO 31000 or COSO ERM. Define clear responsibilities for climate risk management within your organizational structure.
Board-level oversight is also essential. According to BlackRock, almost half of the companies they examined lack clear climate-oriented governance at the board level. Link climate-related goals and metrics to your executives' compensation systems and conduct regular stakeholder dialogues.
Set up regular review cycles that consider both internal changes and external climate developments. A good example is provided by Suncorp: The company has committed to ending financing of oil and gas projects by 2025.
More than 30 countries, representing 57% of global GDP, have now adopted the ISSB standards for climate-related disclosures. This shows how important it is to establish monitoring systems that are compatible with international standards.
To effectively assess climate risks, numerous proven tools are available that are both practical and compliant. According to the European Climate Risk Assessment (EUCRA), there are 36 identified climate risks that threaten areas such as energy and food security, ecosystems, infrastructure, water resources, financial stability, and health in Europe. In Germany, the costs caused by extreme weather events between 2000 and 2021 totaled €145 billion. Below, we show you how scenario analyses, life cycle assessments, and compliance tools can support climate risk assessment.
Scenario analysis, which complies with TCFD (Task Force on Climate-related Financial Disclosures) requirements, forms the foundation for sound climate risk assessment. For physical risks, the 4°C scenario is frequently used, while transition risks are assessed with the 1.5°C scenario.
A first step involves defining relevant locations and parameters, such as the geographical analysis radius and time horizon. Climate risk matrices help visualize identified risks and prioritize measures accordingly. Both current climate risks for the next ten years and possible future risks under various scenarios should be assessed.
The urgency is highlighted by global figures: Between 1993 and 2022, extreme weather events worldwide claimed over 765,000 lives and caused direct economic damages of almost $4.2 trillion.
Following scenario analysis, Life Cycle Assessment (LCA) provides deeper insights into the total climate impacts of your activities. LCA studies can be used to conduct impact, risk, and opportunity assessments (IROs) as part of the double materiality analysis. This considers both direct emissions and indirect effects along the entire value chain. This method also supports compliance with the EU Taxonomy by identifying taxonomy-eligible activities and assessing their alignment.
Specialized software solutions make it easier to meet CSRD and EU Taxonomy requirements. An example is the climate risk assessment module from Envoria, which can perform more than 10,000 climate risk analyses simultaneously. This tool is particularly suitable for large-scale projects in industries such as manufacturing, financial services, and global supply chains.
"Climate change is already an economic risk factor. Our goal is to provide companies with a clear, data-driven decision-making foundation. Our thorough and verified climate risk analyses make this possible."
Sven Schubert, CEO & Co-Founder of Envoria
These tools serve to identify, assess, and analyze physical and transition climate risks in an organization-specific context. They provide precise data both at the company level and for entire corporations. When selecting the right tools, you should ensure they can identify location-specific climate risks and support the development of detailed adaptation plans. Annual losses from droughts in agriculture in the EU and UK alone could amount to approximately €9 billion with 2°C warming.
To effectively manage climate risks, it's crucial to systematically integrate them into corporate structures. This requires both organizational and procedural adjustments that enable clear distribution of responsibilities.
A central step is establishing clear responsibilities in climate risk management – from the board level through the risk committee to individual risk owners responsible for identifying, assessing, and managing climate-related risks.
Multinational companies might formulate this as follows:
"Our enterprise risk management approach follows ISO 31000 principles, and climate-related risks are integrated into this framework through structured risk identification, assessment, and treatment processes."
Additionally, it's important to train stakeholders specifically and define clear responsibilities for risk response.
Instead of developing new processes from scratch, climate-related risks should be integrated into existing risk management systems. The Institute of Risk Management emphasizes:
"There is broad consensus that addressing climate-related risks is a critical component of ERM [Enterprise Risk Management] to help an organization understand its future risk profile."
By combining climate risks and scenario planning with existing strategic planning cycles, synergies can be created. However, strong support from corporate leadership is essential for successfully implementing organizational changes.
Corporate leadership plays a key role in raising awareness about climate change and its impact on business. Climate topics should be an integral part of risk management activities.
A global Deloitte survey from 2023 shows that almost 40% of respondents expect only minimal impact from climate change on their business strategy. At the same time, only 33% link executive compensation to sustainability performance. However, linking KPIs to compensation models can help set clear and achievable goals.
A British chairman puts it succinctly:
"We need to put climate transition progress into the same framework as normal performance management for operations and finance. You set targets, create a plan, measure tracking, and steer toward the goal."
The economic arguments for an ambitious climate strategy are clear: Inaction could cost the global economy $178 trillion by 2070. Conversely, accelerated action could increase global prosperity by $43 trillion.
A French chairman summarizes it aptly:
"We can't work on corporate strategy Monday through Friday and save climate strategy for Saturday morning. The two are and must be integrated."
A consistent climate strategy should therefore be seamlessly integrated into the corporate strategy, with long-term climate commitments translated into concrete short-, medium-, and long-term goals.
Considering climate risks not only offers companies new opportunities but also brings some challenges. These factors significantly influence the effectiveness of the measures described earlier. Below, we examine key success factors and typical obstacles that play a role in integrating climate risks.
Data Quality as Foundation: Good data is the key to integrating climate risks. Sabine Mauderer, Executive Board member of the Bundesbank and Chair of the NGFS, puts it succinctly:
"The availability of comprehensive, consistent, and timely data is key to everything we do. [...] The better the data situation, the more targeted our measures can be."
Long-term Stakeholder Relationships: Companies that maintain resilient and long-term partnerships with their stakeholders can better manage climate risks. This approach is particularly helpful in developing climate services.
Technological Solutions: Using modern technologies enables early response to climate risks. An example is E.ON, which specifically strengthened its network infrastructure after the 2021 Ahr Valley floods.
Financial Security: Strategies such as long-term contracts and sustainable investment guidelines help keep revenues stable. Commerzbank relies on sustainability certificates for real estate.
Despite these success factors, there are some challenges companies must overcome:
Organizational Inertia: Many companies underestimate the urgency of climate change and associated financial risks. Studies show that climate risks can reduce corporate profits by up to 25%. It's crucial to clearly communicate the economic consequences.
Missing or Inadequate Data: Incomplete and inconsistent data hinder sound decisions. Improved data infrastructure and collaboration with specialized providers can help.
Financing Problems: Implementation of climate-related measures often fails due to financing. Models such as Deutsche Bank's mortgage program with the EIB, which invested over €600 million in low-interest loans for ecological projects, show how solutions can look.
Lack of Leadership Support: Without backing from leadership, many climate initiatives fail. Linking climate goals to compensation structures and clear strategic communication are crucial here. Günther Thallinger, Executive Board member of Allianz, puts it aptly:
"The transition to a net-zero economy is not just a matter of sustainability; it is a financial and operational necessity to avoid a future where climate shocks exceed our resilience and burden governments, businesses, and households."
Regulatory Complexity: Many companies feel overwhelmed by constantly growing regulatory requirements. Given that over 40% of weather-related losses worldwide are insured and natural catastrophe damages in 2024 are estimated at over $140 billion, the importance of proactive risk management becomes clear. Early involvement of experts and continuous monitoring of regulatory changes are essential here.
Integrating climate risks into corporate strategies is a demanding task that requires solid expertise. Fiegenbaum Solutions supports companies and start-ups in specifically mastering these challenges and developing sustainable business models. Both strategic approaches and precise quantitative methods are employed.
At the center of the consulting services are ESG strategies and climate risk management. Johannes Fiegenbaum and his team develop individual approaches that not only meet regulatory requirements but also support clear climate goals. Using LCA (Life Cycle Assessment), companies can measure their environmental impacts in detail and specifically identify improvement potential. At the same time, specialized consulting on topics such as CSRD and EU Taxonomy requirements ensures legal security and compliance.
Fiegenbaum Solutions' offerings are versatile and tailored to different industries:
Thanks to Fiegenbaum Solutions' flexible structure, companies can choose between project-based approaches and long-term partnerships. While project-based solutions, such as LCA studies or ESG roadmaps, are suitable for specific challenges, retainer agreements offer continuous support for strategic sustainability issues.
Another advantage: Transparent pricing ensures planning security without hidden costs. This allows companies to achieve their sustainability goals with a reliable partner by their side.
Considering climate risks in corporate decisions is essential today. The World Economic Forum puts it succinctly:
"Integrating climate risk management into core business practices is no longer optional but a critical imperative for maintaining competitive advantage and safeguarding financial stability."
This assessment is reflected in practice: Over 80% of S&P 500 companies already recognize climate change as a business risk. This recognition forms the foundation for structured risk management processes.
Proven approaches to climate risk assessment should be regularly reviewed and updated. Successful companies rely on established frameworks such as ISO 31000 and integrate climate issues directly into their existing risk management systems. A multinational company describes this approach as follows:
"Our enterprise risk management approach follows ISO 31000 principles, and climate-related risks are integrated into this framework through structured risk identification, evaluation and treatment processes."
Regulatory frameworks are evolving rapidly and bringing additional requirements. More than 30 jurisdictions representing 57% of global GDP have already made decisions to adopt ISSB standards. This underscores the urgency of implementing the described measures.
The next step lies in the practical application of these frameworks. Companies should set SMART goals, use modern data analysis tools, and conduct scenario planning to assess various climate conditions. An example is provided by Bayer AG: By participating in the Value Chain Risk to Resilience working group of the Business for Social Responsibility network, the company was able to improve its analyses for identifying climate risks in the supply chain.
As Nicolas Schweigert from Bayer AG emphasizes, exchange with other companies is invaluable:
"Climate change affects us all and is one of the greatest challenges that humankind will face in the future... Through dialogue in this forum, we improved our own analyses and the identification of regulatory and physical climate risks and climate resilience measures throughout companies' supply chains."
Success in this area requires not only internal measures but also close collaboration between companies, governments, and local communities to effectively address climate-related challenges.
Companies should first conduct a thorough analysis to accurately capture climate-related risks and their potential impacts on their business. This involves systematically considering risks such as extreme weather events, regulatory changes, or market shifts.
These insights should then be integrated into strategic planning and decision-making processes. Climate risk assessments, scenario analyses, or developing long-term risk mitigation strategies can be valuable tools for making informed decisions.
Ongoing monitoring of climate risks and targeted employee training play a crucial role. They support establishing a resilient and future-oriented corporate culture capable of meeting climate change challenges.
Companies can use double materiality analysis to specifically assess their climate impacts and financial risks. This involves two central perspectives: Impact materiality, which examines how business activities affect the environment and society, and financial materiality, which examines short-, medium-, and long-term financial risks and opportunities.
This method provides companies with a clear foundation to identify relevant risks and opportunities, develop sustainable strategies, and meet requirements such as the CSRD. This way, they can not only fulfill their responsibility for the climate but also strengthen their competitiveness and future security.
Companies today have access to a variety of methods and tools to specifically assess climate risks and meet CSRD requirements. These include specialized software solutions that simplify the collection and reporting of sustainability data. Additionally, data models and machine learning are used to precisely analyze and measure physical climate risks.
Other approaches include assessing asset exposure, analyzing the relevance of specific risks, and using established frameworks such as the ESRS E1 standard. The latter provides clear guidelines for reporting on physical climate risks. With these tools, companies can make informed decisions and align their climate strategies for the future.