How to Identify and Manage Hidden Climate Risks in Your Supply Chain

How well do you know the climate risks in your supply chain? Hidden climate exposures—risks that aren’t immediately visible—can have serious consequences: financial losses, supply chain disruptions, or even legal repercussions. According to a 2023 World Economic Forum report, over 70% of businesses experienced at least one climate-related supply chain disruption in the past five years. With the right approach, however, you can identify and proactively address these risks.

What you need to know:

• Regulatory requirements: The CSRD and EU Taxonomy require companies to disclose climate and ESG risks. By 2029, this will affect around 50,000 companies in the EU. Similar trends are emerging globally, such as the SEC’s climate disclosure rules in the US.
• Three categories of climate risks: Physical risks (e.g., flooding), transition risks (e.g., CO₂ pricing), and financial/reputational risks.
• 5 steps for analysis: Map your supply chain, identify geographic hotspots, assess financial impacts, prioritize vulnerabilities, and develop baseline metrics.
• Tools & methods: Standards like the GHG Protocol and Life Cycle Assessment (LCA), as well as tools such as SimaPro and CDP platforms, support your measurement efforts.

Why act now? Companies that address climate exposures early gain competitive advantages, minimize risks, and comply with legal requirements. The right analysis and implementation are key to building a resilient value chain. Research by McKinsey shows that proactive climate risk management can reduce supply chain disruption costs by up to 30%.

How to Map Climate Risks in Your Value Chain

Regulatory requirements are increasingly demanding that companies assess their climate exposure. The following method provides you with a clear guide to identify and evaluate risks along your value chain.

3 Types of Climate Risks

Climate risks can be divided into three main categories:

Physical risks arise from the direct consequences of climate change. These include acute events such as hurricanes and floods, as well as chronic developments like long-term temperature increases. For example, the European Environment Agency reports that Europe has seen a doubling of weather- and climate-related economic losses since 1980.

Transition risks relate to the shift toward a low-carbon economy. This includes new regulations such as CO₂ pricing, stricter reporting requirements, and regulatory measures like the EU Taxonomy. The IEA’s Net Zero Roadmap highlights that companies failing to adapt may face higher costs and stranded assets.

Financial and reputational risks stem from the complex interconnections of climate risks in global supply chains. For example: Hurricane Ian caused a 75% drop in deliveries and extended shipping times by an average of 2.5 days in September 2022. Subaru had to temporarily halt operations at two car factories in 2019 due to Typhoon Hagibis and flooding at suppliers. According to Bain & Company, such disruptions can reduce annual EBITDA by up to 20% in affected sectors.

5 Steps to Identify Climate Exposures

Step 1: Map your supply chain. Analyze your suppliers, production sites, and transportation routes to identify potential vulnerabilities. Companies with comprehensive climate risk assessments experience 45% fewer weather-related disruptions (WEF).

Step 2: Identify geographic climate hotspots. Combine climate risk data with your supply chain map to locate regions at higher risk, such as for floods or storms. Also consider indirect dependencies. Tools like the Copernicus Climate Change Service provide valuable regional data.

Step 3: Assess financial impacts. Simulate potential losses through disruption scenarios and prioritize risks based on potential economic damage. Supply chain disruptions can cost between $100 million and $1 billion, as estimated by McKinsey.

Step 4: Prioritize vulnerabilities. Evaluate critical risks based on likelihood, potential impact, and the difficulty of mitigation.

Step 5: Develop baseline metrics. Define KPIs to measure climate resilience and document your current status so you can track progress over time.

With a solid overview of your risks, you lay the foundation for collecting reliable supplier data and driving internal alignment—a crucial step for your ESG strategy.

Getting Better Data from Suppliers and Teams

The quality of the data you receive from your suppliers is crucial for identifying emission hotspots in the supply chain. Primary data, sourced directly from suppliers, plays a central role here.

Start by identifying the suppliers that have the greatest impact on your emissions. Clear and targeted communication is key: communicate your requirements and intentions transparently, protect sensitive data, and offer support.

Support your suppliers with training and tools to accurately capture emissions data. Webinars, workshops, and ongoing support can provide valuable assistance.

Integrate the collected data systematically into your emissions management systems. Data exchange platforms can help optimize the flow of information between suppliers and your team, building trust in the process. The CDP Supply Chain program is a leading example of collaborative data sharing for climate action.

Additionally, internal alignment is essential: coordinate closely with relevant departments and your procurement team. Start with existing data and gradually expand it with more detailed information from your suppliers.

Go beyond mere data collection and work together with your suppliers on solutions to reduce carbon emissions. A partnership-based approach can make all the difference. As McKinsey & Company emphasizes:

"The organizations leading in climate resilience don't treat it as a separate sustainability initiative - they've embedded climate considerations into core supply chain decisions from network design to daily operations. This integration transforms climate risk management from a cost center to a source of competitive advantage." (McKinsey)

Tools and Methods for Measuring Climate Exposures

To accurately measure and assess climate risks, choosing the right frameworks and tools is essential. These help you identify and quantify hidden climate exposures. Below, we highlight the most important approaches and tools.

Key Frameworks and Standards

A central standard for measuring greenhouse gas emissions is the GHG Protocol. It divides emissions into three scopes: Scope 1 (direct emissions), Scope 2 (indirect emissions from purchased energy), and Scope 3 (all other indirect emissions along the value chain). Scope 3, in particular, can account for up to 80% of the CO₂ footprint (US EPA).

The GHG Protocol offers various standards, including the Product Standard, Corporate Standard, Corporate Value Chain (Scope 3) Standard, and the Project Protocol. The Product Standard enables you to capture a product’s lifecycle emissions and identify targeted reduction opportunities.

Another important tool is Life Cycle Assessment (LCA). It considers the entire lifecycle of a product and helps identify innovative ways to reduce emissions. By taking responsibility along the value chain, companies can achieve real progress, for example, through circular business models. The ISO 14040 standard provides the international framework for LCA.

Practical Tools for Measurement

Numerous tools are available to support implementation:

• SimaPro: A leading LCA software with extensive databases and precise models—ideal for complex supply chains.
• GHG Protocol calculators: Free, Excel-based tools that support systematic recording and categorization of emissions by the three scopes.
• CDP platforms and cloud-based tools: These enable automated data collection and benchmarking against industry standards. Smaller companies can often integrate them seamlessly into existing ERP systems.

Data-Driven Methods for Risk Analysis

Once you’ve measured emissions, you can use data-driven methods to analyze climate risks in detail. Such analyses are essential for systematically assessing potential risks and developing adaptation strategies. They also serve as the basis for reporting under the CSRD and EU Taxonomy. Risks and opportunities are identified that could impact your company’s financial health in the medium to long term—based on their likelihood and magnitude.

With scenario modeling, you can simulate different climate scenarios. Regional climate data, such as from the Copernicus Climate Change Service, can be integrated into your analyses. The Task Force on Climate-related Financial Disclosures (TCFD) recommends scenario analysis as a best practice for climate risk management.

Integrating these analyses into taxonomy reporting helps you meet regulatory requirements. It’s important to identify taxonomy-eligible activities, assess physical climate risks, and ensure compliance with the Technical Screening Criteria (TSC). In addition, no significant harm should be caused to other environmental objectives (Do No Significant Harm, DNSH).

By combining standardized frameworks, practical tools, and data-driven analysis methods, you can accurately capture climate exposures and make informed decisions for your ESG strategy.

How to Turn Results into ESG Action Plans

Analyzing climate exposures is just the beginning—the real value lies in translating these insights into concrete ESG actions. Here’s how you can integrate the results of your climate exposure analysis into impactful ESG strategies and implement them successfully.

Integrating Results into Your ESG Strategy

As mentioned in previous sections, standards form the foundation of a solid ESG strategy. To effectively address climate risks, a materiality analysis is crucial. This helps you identify the key ESG topics in line with current regulations and standards and embed them into your strategy.

Set clear climate targets, such as aiming for climate neutrality by 2050, aligned with the goals of the Paris Agreement. The German Climate Protection Act, for example, calls for a 65% reduction in greenhouse gas emissions by 2030 and 88% by 2040 compared to 1990. With the introduction of the CSRD, the number of companies required to report in Germany will rise from 550 to 15,000. Companies must prepare to capture and disclose over 140 sustainability indicators (KPIs).

A well-thought-out ESG data management strategy aligned with your business goals forms the backbone of your efforts. Modern technologies such as AI and machine learning can help capture data efficiently, identify patterns, and achieve ESG goals across departments. The use of AI in sustainability is rapidly growing and can provide a competitive edge.

Planning for Different Scenarios

Based on this data, you can develop scenarios that help you respond flexibly to changes in markets or regulations. AI-powered models can help analyze complex climate data and predict possible environmental conditions and their impact on your business processes.

Create climate adaptation plans that include measures such as diversifying energy sources, decarbonizing operations, optimized supply chain management, sustainable financing, and switching to alternative fuels. These plans should consider various climate scenarios and include corresponding adaptation strategies. The UNEP FI highlights that supply chain adaptation is vital for long-term resilience.

Active risk management also plays a crucial role. Systematically analyze your supply chains to identify potential risks for operational disruptions. Keep in mind that violations of the German Supply Chain Act can result in fines of up to two percent of annual revenue (BMAS).

Integrate your climate risk analysis into ESG planning by identifying taxonomy-eligible activities and assessing physical climate risks. At the same time, closely involve stakeholders to strengthen transparency and accountability in the ESG reporting process. David Cau, Head of Sustainability Reporting Services at SGS, sums it up:

"Progress requires more than commitments; it requires collaboration, transparency, and verified results."

To meet rising demands, establish sustainable and repeatable processes for data collection and aggregation. Investors are demanding consistent and reliable ESG data, as ESG Today notes. A strong data governance framework and clear processes help you meet these requirements while minimizing the risk of ESG-related litigation.

How Fiegenbaum Solutions Can Support Your ESG Transformation

After analyzing your climate exposures, the next step is to put theoretical insights into practice. That’s where Fiegenbaum Solutions comes in: With our expertise, we help you achieve your sustainability goals and meet regulatory requirements. Let’s take a look at how our consulting services can support you in concrete terms.

Assessing and Minimizing Climate Risks

Johannes Fiegenbaum and his team help you systematically analyze and reduce climate risks. Using impact modeling and scenario analyses, you receive clear action recommendations tailored specifically to your value chain.

We examine both physical and transition risks. With modern analysis methods, we uncover hidden climate exposures—aspects often overlooked in traditional risk assessments. This in-depth analysis is key to developing business models that remain viable even under changing climate conditions. Based on the identified risks, we create customized roadmaps that guide you toward a resilient future.

Tailored ESG and Decarbonization Strategies

Fiegenbaum Solutions designs custom ESG roadmaps aligned with your business objectives and industry requirements. Our consulting covers the development of net-zero strategies and realistic carbon reduction plans that are ambitious yet achievable.

Our expertise includes life cycle assessments (LCA) for products and organizations, as well as strategies for efficiency improvement and cost optimization. Especially when it comes to meeting CSRD requirements, you benefit from our up-to-date market and regulatory knowledge. Thanks to our flexible approaches, you can continuously adapt your ESG strategy to new developments.

Consulting That Fits Your Needs

Our consulting models are as flexible as your needs. Fiegenbaum Solutions offers various approaches tailored to your individual requirements.

• Project-based consulting: Ideal for specific tasks such as life cycle assessments, ESG roadmaps, or regulatory reporting projects. Costs depend on the scope and complexity of each project.
• Long-term partnerships: For companies seeking ongoing support in areas like sustainability, climate risks, or compliance, we offer retainer agreements. These provide strategic support over a longer period and allow you to respond flexibly to market changes.
• Special rates for startups: Impact-driven companies and startups benefit from special offers tailored to their development phase and goals. After an initial consultation, you’ll receive a transparent and detailed proposal.

With Fiegenbaum Solutions, you have a partner at your side who not only understands the challenges but also delivers solutions that truly fit your needs.

Conclusion: Building a Resilient and Future-Oriented Value Chain

A thorough analysis of measurement methods, risks, and regulatory frameworks makes one thing clear: Identifying and assessing hidden climate exposures is now indispensable. Companies that act now not only gain a competitive edge but also reduce the financial risks brought by climate change.

The impacts of climate change are already being felt. In Europe, the climate has warmed twice as much as the global average since 1980, resulting in damages of €270 billion in 2023 alone (EEA). These figures show that ignored climate risks can lead not only to operational disruptions and legal consequences but also to lasting reputational damage.

At the same time, proactive action not only reduces risks but also brings significant financial benefits. Every euro invested in climate adaptation and resilience can yield up to 19 euros in avoided losses (World Economic Forum). Success stories like Ørsted, which focuses on renewable energy, or AXA, which invests in green assets, show how such measures pay off (UNEP FI).

Regulatory requirements are becoming ever stricter. The increasing tightening of regulations is driving the shift toward climate neutrality. ESG criteria are gaining importance and underscore the focus on climate protection and the transformation of the economy.

Despite growing challenges, climate resilience is much more than just a cost factor—it is a key driver for growth in an uncertain world. Companies that act decisively not only protect their assets and reputation but also lay the foundation for sustainable success. Integrating effective climate risk management into business strategy is the key to long-term success.

The first step toward a resilient value chain is the systematic identification and assessment of hidden climate risks. With the right tools, methods, and partners, you can not only meet regulatory requirements but also develop a future-proof and climate-resilient corporate strategy.

FAQs

How can companies ensure they comply with CSRD and EU Taxonomy requirements for climate risk disclosure?

To meet the requirements of the CSRD and EU Taxonomy, it is essential to implement the EU Sustainability Reporting Standards (ESRS) and regularly assess climate and environmental risks. This includes thoroughly analyzing emissions along the entire value chain and developing a clear strategy to reduce these emissions, aligned with the goals of the Paris Agreement. Conducting scenario analyses, as recommended by the TCFD, helps to better identify and assess potential climate risks. With these measures, companies can increase transparency, promote sustainable business models, and ensure they meet regulatory requirements by 2025.

Why should a company integrate climate risk analyses into its ESG strategy?

Integrating climate risk analyses into your ESG strategy brings many benefits. You can identify potential risks early, strengthen your ability to handle climate-related challenges, and be better prepared for regulatory requirements. A thorough analysis of climate risks also opens up opportunities to develop decarbonization measures and promote sustainable value creation. This not only supports the achievement of your ESG goals but also gives you long-term advantages in a market that increasingly values sustainability. According to PwC, companies with strong ESG performance attract more investment and customer loyalty.

Which methods and tools are best for identifying and measuring hidden climate impacts in the supply chain?

The most effective approaches for identifying and measuring hidden climate impacts in the supply chain include using lifecycle assessment tools (LCA) like SimaPro and applying standards such as the GHG Protocol. These tools help capture and assess emissions in detail along the entire value chain. Additionally, specialized software solutions and climate risk analysis frameworks are available to help identify potential risks early. This enables companies to make informed decisions and develop sustainable strategies. With these approaches, ESG goals can be pursued in a targeted manner and decarbonization measures implemented efficiently.