Climate risk is not a future problem we can push down the road. It’s here, it’s tangible, and it’s a growing financial reality for private markets.
The evidence is sobering. Natural disasters worldwide resulted in losses of $320 billion US in 2024, which was also the first year that annual average temperatures exceeded the landmark threshold of 1.5°C above pre-industrial levels. In Europe, losses increased by over 50% between 2009 and 2023.
The COVID-19 pandemic led to a much greater focus on improving business adaptability in the face of sudden global market events. In just two years, from 2021 to 2023, the proportion of S&P 500 companies disclosing climate risks jumped from 64% to 84%. Among the Russell 3000, that percentage more than doubled to over 60% in the same time period. Leaders who recognize climate risk as financial risk are positioning themselves to mitigate the most severe impacts while also leveraging market and commercial opportunities on the way to becoming resilient and sustainable businesses.
What Are Climate-Related Risks?
Climate-related risks describe extreme weather events and climatic shifts that impact businesses, such as extreme heat or drought. Other types of climate-related risk include market- and socially-driven considerations, such as technology innovation and brand reputation. The latter are termed transition risks and describe the potential negative implications (and opportunities) associated with the transition to a low-carbon economy.
How Are Organizations Responding to Climate Risks?
Climate risk is now firmly a boardroom priority across private markets. Alongside the alarming trends in physical risk exposure, holding periods and emissions reduction goals are increasingly overlapping. Today, one in four privately held companies has a formal emissions target. This brings into sharp focus the need for robust climate risk governance, decision-useful analysis, and management policies.
We are seeing maturity increasing and improving in various areas, from emissions reporting to climate scenario analysis and disclosure under recognised frameworks such as the Taskforce for Climate-Related Finance Disclosure (TCFD) and its successors (including the European Sustainability Reporting Standards (ESRS) and California Senate Bills 253 and 261).
Where Should Organizations Start with Climate Risk Reporting?
To get started with climate risk reporting, organizations should first get familiar with the requirements of recognised frameworks, such as the TCFD recommendations for disclosure or the International Sustainability Standards Board (ISSB). Read more sector-specific guidance on the governance and strategy behind managing climate risk is available at.
Early-stage organizations can also tap into the wealth of publicly available details on best practices published by reporting and disclosure institutions, review the analysis and approach of peers, and establish data collection goals to support more detailed assessments.
Navigating Climate Risk with Novata
For investors and company leaders, the landscape is only getting more complex. As regulatory requirements grow, and the pressure for credible, evidence-based climate strategies continues to rise, understanding material physical and transition risks will be critical. This blog series will dive into the first steps for companies, exploring regulatory readiness, materiality, and conducting a scenario analysis.
If you’re seeking clarity on climate risk, Novata’s advisory experts can help you navigate the journey, from first principles through to strategic decision making. Get in touch to learn more about how we can support your climate risk assessment and management.
This blog is part of Novata’s Climate Risk Series. Read the other articles in the series:
- Regulatory Readiness: What to Know Before Your Disclosure
- Climate Materiality Assessment: How to Shortlist Climate Risks
- Introducing Scenario Analysis: Demystifying Requirements
- Scenario Analysis: Practical Steps for Measuring Risk
- From Analysis to Disclosure: Why Going Public on Climate Risk Matters
