With California’s SB 261 climate legislation on the horizon, companies want to understand the financial risks posed by climate change and how to report on them. (If you need a primer on SB 261, we’ve got you covered!) While regulatory requirements are a driving factor in the renewed attention on climate-related risks and opportunities (R&Os), the broader benefits of embedding climate resilience should compel every business to evolve their sustainability strategy.
“Think of this work not just as checking a box, but as a chance to strengthen your business for the long term,” says Sheila Ongie, Head of Sustainability Strategy at thinkPARALLAX. “Approach it with the mindset of building resilience — not just for the company, but for all of the people, families, and communities who count on you: your team, your suppliers, your customers, and the places where you live and work. This is ultimately about protecting what matters most and creating a stronger foundation for the future.”
In 2024, the U.S. had 27 confirmed weather or climate-related disaster events, with losses totaling over $1 billion each. According to a recent analysis by the reinsurance company Swiss Re, global losses are on trend to reach over $145 billion in 2025.
As extreme weather events become more frequent, proactively managing climate risk is key to a thriving, resilient business. Companies often start by considering the visible, acute climate risks that a major weather event might wreak on operations: hail-damaged crops after a storm, electrical outages that halt POS systems, or product inventories submerged in a flash flood. There are also chronic risks, like reduced access to water for manufacturing due to long-term droughts or increased insurance costs for coastal real estate assets that are threatened by rising sea levels.
Climate risks extend beyond a company’s operations. Climate and weather-related impacts on key upstream and downstream partners in the value chain can have a ripple effect. It’s important for a company to clearly map their value chain as part of the assessment process to help to identify less obvious risks that could have significant ramifications. It also strengthens supplier engagement and collaboration and can prevent supply bottlenecks or cost inflation due to climate-driven disruptions.
There are also less obvious risks and opportunities to consider, including transition risks (and opportunities). For example, if consumer needs and preferences for more sustainable products and services change, it could open up a new financial market for a company. As climate-related regulation becomes more common, it could result in increased operational costs for compliance and potential litigation and fines for non-compliance. Identifying resource efficiencies across operations, such as energy efficiency, product reuse or recyclability, or reducing business travel, can simultaneously support emissions reduction targets and reduce operating costs.
Transition risks: climate-related risks that arise from shifts to a low-carbon economy, new regulations, market changes, or consumer demands
Climate risk assessments offer a range of strategic benefits for businesses. They enhance resilience by identifying operational and value chain vulnerabilities, which helps companies prepare for potential climate-related disruptions. As regulatory expectations evolve, climate risk assessments improve compliance readiness. Additionally, they can build stakeholder confidence in effective management processes while protecting financial performance by mitigating risks associated with costly disruptions or reputational harm. They can unlock potential new market opportunities and reduce operating costs by identifying efficiencies. And they support informed decision-making by integrating climate considerations into long-term planning, innovation, and investments.
Climate risk assessments clearly have business benefits, but it can be hard to know where to start. Where should a company begin?
It can seem daunting to undertake a climate risk assessment, but there are resources available to get started. The Task Force for Climate-related Financial Disclosures (TCFD) has many free resources on their Knowledge Hub. Organizing the assessment around TCFD’s 11 recommended disclosures covering Governance, Strategy, Risk Management, and Metrics & Targets will cover SB 261 requirements and align with best practices. These core pillars also help connect climate risk to core business decision-making and strategy.
One key element in a climate risk assessment is climate scenario analysis. This is an area where a company may need some technical support. To kick off scenario analysis, start by identifying a few different climate scenarios (think best case/low emissions, worst case/high emissions, and something in between) to explore how climate R&Os might play out. This can help a company plan their strategies more confidently.
An essential early step in the process is to establish an internal steering committee to oversee the assessment. This group should include leaders from all major business functions—such as operations, legal, supply chain, sustainability, or finance—so that internal experts can weigh in on potential R&Os in their areas of interest and responsibility. Cross-functional collaboration improves the quality of the assessment and fosters organizational buy-in. Involving leaders also helps support resource allocation and facilitate alignment with strategic priorities.
Finally, while understanding your company’s carbon footprint is an important part of this process, do not let it be a barrier to getting started. Climate risk assessments focus on a broad set of R&Os that go beyond emissions. You can begin to explore your vulnerabilities and potential business impacts even if your carbon footprint data is still in development.
Climate risk assessments are no longer a niche activity for sustainability experts; they are a strategic imperative that help companies future-proof their business, identify new growth opportunities, stay resilient in the face of climate threats, and create business and societal value.
Need help with your climate risk assessment? We can help you identify your unique climate risks and opportunities, and integrate resilience measures into your business and sustainability strategy in as few as three months. Reach out to learn more.