How to carry out a climate risk assessment for your business
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For UK businesses, carrying out a climate risk assessment means identifying relevant threats, evaluating their potential impact and deciding what action is needed to manage them.
The process should be proportionate to the size and complexity of the organisation. A smaller business may begin with a straightforward risk register, while a company with multiple sites or significant infrastructure may need a more detailed assessment.
A climate risk assessment is a structured review of how climate-related changes could affect a business.
It identifies potential hazards, examines where the organisation is exposed and evaluates the consequences for its activities.
For example, a manufacturer may need to assess whether flooding could interrupt production, while a logistics company might consider how extreme heat could affect employees, vehicles and deliveries.
A useful assessment considers both current conditions and plausible future changes.
It should also examine indirect risks, including disruption to essential suppliers, utilities and transport networks.
The purpose is not to predict future events with certainty. It is to give businesses a clearer understanding of their vulnerabilities and help them make informed decisions about managing those risks.
Climate-related business risks are generally divided into physical risks and transition risks.
Both should be considered because they can affect different parts of an organisation.
Physical risks arise from weather events and longer-term changes in climate conditions.
They can be divided into two categories.
Acute physical risks relate to individual events, such as flooding, storms and heatwaves.
Chronic physical risks develop over longer periods, such as rising average temperatures, changes in rainfall patterns and sea level rise.
Potential consequences for businesses include:
The level of exposure depends on the location, activities and infrastructure involved.
A business operating several sites may face different hazards at each location.
Transition risks arise from changes associated with moving towards a lower-carbon economy.
These may include new policies, changing customer expectations, technological developments and shifts in market demand.
For example, a business using emissions-intensive equipment may need to consider how future regulations or customer requirements could affect operating costs and investment decisions.
Other transition risks include changes in energy prices, product demand and the availability of lower-carbon alternatives.
Businesses should assess which developments are relevant to their sector rather than assuming every transition risk will affect them equally.
A practical climate risk assessment should move from identifying risks to deciding how they will be managed.
The following seven steps provide a structured approach for UK businesses.
Start by deciding what the assessment needs to cover.
This could include offices, warehouses, manufacturing facilities, transport operations, critical suppliers or the entire organisation.
Identify which business activities are essential and which assets would be most difficult or costly to replace.
You should also establish the assessment's objectives.
For example, the business may want to strengthen continuity planning, support a property investment or understand risks affecting its supply chain.
Involve people with relevant operational knowledge, including representatives from facilities, finance, procurement and senior management.
Finally, agree on the timeframes to assess.
These should reflect the decisions being made and the expected lifespan of important assets.
Next, identify the physical and transition risks that could affect the business.
For physical risks, consider the locations of buildings, infrastructure and important suppliers.
Relevant hazards might include flooding, extreme temperatures, storms, drought and coastal changes.
Use reliable information rather than assuming that recent weather conditions represent future exposure.
The Met Office provides UK climate information and projections that can support assessments of potential future conditions.
Businesses should also consider transition risks, including changes in regulation, technology and customer demand.
Record each relevant risk and explain how it could affect a particular activity, asset or business objective.
Identifying a climate hazard is only the beginning.
You also need to understand whether the business is exposed and how vulnerable its operations may be.
For example, two businesses in an area exposed to flooding may experience very different consequences.
One might have equipment and stock on the ground floor, while another has protective measures and alternative operating arrangements.
Consider the condition of buildings, existing controls, reliance on utilities and the availability of backup systems.
Supply chain exposure is also important.
A business may be relatively protected at its own premises but depend on a supplier operating in an area vulnerable to drought or extreme weather.
Once the risks have been identified, assess their significance.
A simple scoring system can help businesses compare risks consistently.
For example, likelihood and impact could each be scored from one to five.
Risk score = likelihood × impact
A risk given a likelihood score of four and an impact score of five would receive an overall score of 20.
However, climate risk scoring requires care.
Future conditions are uncertain, and some risks cannot be assigned reliable probabilities.
Businesses should explain the assumptions behind their scores rather than treating them as precise predictions.
Potential impacts should consider financial losses, operational downtime, employee safety, environmental consequences and business continuity.
Climate risks may change over time, particularly where a business is making long-term investments.
Scenario analysis helps organisations explore how different plausible future conditions could affect their operations.
For example, a company planning a new facility could consider how increasing temperatures or changes in rainfall might affect its suitability over several decades.
Businesses may also examine different transition scenarios, such as faster or slower adoption of low-carbon technologies.
The scenarios should be relevant to the decisions being assessed.
For a small business, a qualitative comparison may be sufficient.
More complex or high-value investments may justify specialist modelling and detailed climate data.
After evaluating the risks, decide which require action first.
Consider their severity, timing, existing controls and the practicality of further measures.
For example, a business exposed to flooding might review drainage, equipment placement and emergency arrangements.
A company concerned about water shortages could investigate consumption, efficiency improvements and contingency options.
Where suppliers are vulnerable to disruption, the business may need to explore alternative sources or improve stock planning.
Each action should include:
The aim is to turn the assessment into practical risk management rather than simply recording potential problems.
Climate risk assessments should be reviewed as business circumstances and available information change.
New premises, equipment, suppliers or operating processes may create different exposures.
Significant weather events can also reveal vulnerabilities that were not previously recognised.
Review whether planned controls have been implemented and whether they remain effective.
Update the risk register when new information changes the likelihood, impact or priority of a risk.
For some businesses, reviewing the assessment annually may be appropriate.
Organisations subject to specific environmental permit conditions should also follow any applicable review requirements.
Businesses can often begin with information they already hold.
Useful records include site details, asset registers, previous disruption reports, business continuity plans and supplier information.
External information can help identify hazards that are not obvious from internal records.
For UK businesses, relevant sources include:
The level of detail should reflect the importance of the decisions involved.
A business assessing an office's exposure to occasional disruption may need a different level of analysis from one investing in a long-life industrial facility.
Any significant information gaps should be documented.
Consider a hypothetical manufacturing company operating from one UK site.
The business depends on electricity, water, road transport and several specialist material suppliers.
Its initial assessment might identify the following risks.
| Climate Risk | Potential Impact | Possible Action |
| Flooding | Equipment damage and production downtime | Review flood exposure and protect critical assets |
| Extreme heat | Reduced equipment performance and difficult working conditions | Assess cooling, ventilations and heat management |
| Water shortages | Disruption to water-dependent processes | Improve water efficiency and review contingency options |
| Supplier distribution | Delays in essential materials | Assess supplier exposure and alternative sourcing |
| Transition risks | Changes in operating costs or customer requirements | Monitor relevant developments and review investment plans |
This example illustrates the types of information a business might record.
It is not a completed assessment.
The organisation would still need to evaluate the likelihood, impact, timing and existing controls for each risk before deciding on its priorities.
Not every risk requires the same response.
Businesses should prioritise risks according to their potential consequences and how effectively they can be managed.
Three considerations are particularly important.
Consider whether a risk could cause serious financial losses, operational disruption, safety problems or environmental damage.
Risks with potentially severe consequences may require attention even where their likelihood is uncertain.
Some risks may already affect the business, while others could become more significant over time.
The timing matters when planning investment.
For example, a business replacing equipment may need to consider climate conditions throughout the expected working life of the new system.
Assess how well current arrangements manage the risk.
Consider whether additional measures would be effective, affordable and proportionate.
Where several risks have similar scores, the business may prioritise those with the greatest potential consequences or the most practical opportunities for improvement.
Climate risks do not stop at a business's premises.
Suppliers, manufacturers, transport providers and distribution centres may all be exposed to physical climate hazards.
For example, flooding could interrupt deliveries from a key supplier even when the customer's own site is unaffected.
Businesses should identify which suppliers are critical and consider their locations, dependencies and ability to respond to disruption.
This does not mean every supplier requires an equally detailed assessment.
A proportionate approach focuses on the relationships most important to business continuity.
Understanding the business case for supply chain mapping can help organisations identify critical dependencies and potential vulnerabilities.
Businesses can then consider whether additional suppliers, improved communication or alternative arrangements would reduce their exposure.
A climate risk assessment is not a universal standalone legal requirement for every UK business.
However, some organisations have specific climate-related reporting or risk management obligations.
These depend on factors such as business size, reporting status, sector and regulatory requirements.
For example, Environment Agency guidance explains how relevant operators in England should consider climate adaptation within their environmental management systems.
Businesses operating under environmental permits may need to assess climate risks and maintain appropriate controls.
The requirements are not identical for every organisation.
Businesses should check which obligations apply to their circumstances rather than assuming that all companies must follow the same assessment or reporting process.
The appropriate review frequency depends on the business and the risks identified.
An annual review can provide a useful starting point for organisations using the assessment as part of wider business risk management.
However, some circumstances justify an earlier review.
These include major operational changes, new sites, significant weather-related incidents and updated information about climate hazards.
For operators covered by specific Environment Agency climate change permit conditions, the applicable guidance includes additional review requirements.
The important point is to keep the assessment relevant to current business decisions and future planning.
A document that is not updated or used is unlikely to provide meaningful protection against changing risks.
A climate risk assessment is less effective when it focuses only on obvious weather hazards or becomes disconnected from operational decisions.
Common mistakes include:
Businesses should also avoid confusing climate adaptation with carbon reduction.
Reducing emissions addresses a business's contribution to climate change, while adaptation focuses on managing its effects.
Both are important, but they serve different purposes and should be considered appropriately within business planning.
A climate risk assessment provides a starting point for understanding vulnerabilities and making better-informed decisions.
Green Economy's article on the rising cost of climate risk and why smart businesses are taking action now explains why climate-related disruption is becoming an important consideration for businesses.
For organisations concerned about water availability, its guidance on preparing for drought explores practical steps businesses can consider.
Supply chain resilience also deserves attention. Alongside mapping critical dependencies, businesses can use Green Economy's guide to sustainable procurement in the UK to understand how supplier decisions can support wider business objectives.
Green Economy provides sustainability consultancy and climate adaptation guidance to help businesses identify environmental risks and consider practical improvements.
Whether your organisation is reviewing its operations, supply chain or longer-term sustainability plans, expert guidance can help establish where action may be needed.
Contact Green Economy to discuss the support available for your business.
We are a social enterprise building a more sustainable economy, powered by local suppliers. We help organisations leverage sustainability to grow, while helping green tech and environmental services business win new business in their local area.
If you're interested in exploring how we can help your business grow, get in touch and one of our expert advisors will be happy to help.
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